Turnaround strategy is working, says Burberry, despite Iran war pressure

Susannah Streeter, chief investment strategist at Wealth Club, said: “Burberry revealed a chequered update, putting its best foot forward in key markets like the US and China but has had to turn its collar up against the inclement spending conditions caused by conflict in the Middle East.

“Even though the turnaround strategy under CEO Joshua Schulman is showing signs of progress, the results show that the luxury market is far from immune from the forces swirling around the global economy.

“Sales across Europe, the Middle East and Africa fell three per cent, showing just how quickly sales can evaporate when tensions rise.

“Luxury retailers have become increasingly dependent on the wealthy tourists traipsing through major shopping hubs, from London and Paris to Milan and Monaco, and with so many routes disrupted due to the conflict, shopping trips have been fewer and far between.

“This is partly why the stock has fallen back in early trade by 3.5 per cent, despite overall comparable store sales rising five per cent in the April to June quarter. A rebound in fortunes in the US and China helped move the dial.

“Burberry has been particularly successful in the American market, where sales surged 12 per cent. Brand elevation has been key, but Burberry is also likely to have been benefiting from increased wealth perceptions among well-heeled US shoppers, whose fortunes are so closely intertwined with stock market valuations.

“The heady heights reached by big tech have bolstered trading accounts and, as profits have been booked, some will be channelled into must-have goods.

“But there are risks ahead, especially if volatility continues, as the current tech stars see more of a swipe taken at valuations.

“That leaves Burberry balancing on a tricky catwalk right now. While its underlying recovery appears to be gathering momentum, helped by a revitalised brand focus and improving demand in key markets, luxury spending is ultimately built on confidence, which risks being increasingly tested.”