Burberry loses its cutting edge
BurBerry boss Christopher Bailey created quite a stir at London Fashion Week after deciding to do away with the industry norm of showcasing clothes six months before they become available.
From September, fashionistas will be able to buy its new clothes and accessories as soon as they are unveiled on the catwalk.
The news comes at a time when the global luxury goods market is in slowdown, as it feels the pinch of slow economic growth and fears that China’s love for luxury may be cooling. According to Aranca, the global research company, waning economic growth and a government clampdown on corruption is slowing the upsurge in China’s millionaire club, which contributes the bulk of luxury good sales. The number of millionaires grew a mere 3.8pc in 2014, sharply lower than the 9.7pc growth in 2011.
Burberry’s shares fell 54p yesterday to 1180p as broker Liberum Capital advised clients to sell down to 925p because the group is overly exposed to the Chinese consumer – 38pc of global sales.
It also derives 27pc of sales from the US market, which is also struggling.
German fashion chain Hugo Boss on Tuesday blamed a ‘challenging’ market environment, especially in China, for a profits warning which left its share price in tatters.
Hugo Boss is cutting prices in Asia to bring them more into line with Europe and the US to attract the domestic customer. Burberry’s prices are 1.5 times more expensive than Hugo Boss but the profit and loss account is otherwise in a similar shape. Both have a gross margin of 67pc-69pc and earnings margin of 23pc, but Liberum does not believe the luxury goods model lends itself well to price cutting and promotion.
Other blue chips were definitely out of fashion as oil prices again moved in a southerly direction after Saudi Arabia effectively ruled out production cuts by major producers.
The Footsie fell 95.13 points to 5867.18 and the FTSE 250 was down 111.70 points to 16117.50, not helped by renewed weakness on Wall Street . The Street of Dreams followed Tuesday’s 188 point fall with a further early drop after disappointing economic data added to investors’ pain.
The latest US flash services PMI dipped into contraction territory to 49.8, a 28-month low, and new home sales fell back under the 500,000 mark to 494,000.
Miners yet again bore the brunt of some heavy selling and led the retreat.
Glencore, in which Harris Associates have recently been adding to its 5pc stake, lost 13.1p to 116.35p. After crashing 8.2pc in Syd- ney overnight after cutting its dividend for the first time in 15 years, there was no respite in London for Australian mining giant BHP Billiton. Sellers left the close 62.6p lower at 684.3p. randgold resources, on the other hand, rose 130p to 6650p after broker RBC Capital Markets lifted its target price to £51 from £45.
Support services group Intertek put on 50p to 2881p after broker JP Morgan Cazenove advised clients to take a closer look ahead of full-year results on March 2. It believes the figures will show strengthening trading and the strategy update will remind the market of the structural factors underpinning growth.
Downton Abbey producer ITV touched 253.4p before reacting on profit-taking to close 1.6p off at 247.5p. Credit Suisse moved to outperform and a target price of 310p ahead of the results on March 2. The broker predicts a strong advertising market in 2016, buoyed by sports events, high price inflation and a relatively solid UK economy.
Better-than- expected interims helped McBride advance 15.5p to 170p. Liberum Capital lifted its target price to 215p from 200p and said the company remains in recovery phase as the management are on track to deliver against all stated objectives, includ- ing a doubling on the group return on capital employed over the next three to five years.
Auto T rader, the automotive classified website, reversed 28.1p or 7pc to 359p after private equity firm Apax sold a 23.3pc stake at 365p a pop, raising a tasty £853m in the process. It retains a 1.8pc shareholding for administration purposes.
Martin Ward’s accident management assistance group redde rose 6.5p to 182p on expectations that today’s interim results will exceed expectations and imply pre-tax profits for the full-year will come in at £30m-plus.
Betting shop group William Hill galloped 7.7p ahead to 396.9p on hopes that its annual results will leave the embarrassing lossmaking performance of rival Ladbrokes many furlongs behind.
Full-year operating profits of £290m have already been announced. Investec expects news of very strong current trading in the first seven weeks of 2016 and, with the Cheltenham Festival just around the corner, prospects look good. ÷ PENNY share punters chased Ascent Resources 24pc higher to 1.02p on hearing it is heading towards production at its Slovenian asset. The board yesterday updated followers on its three possible routes to produce gas, but its long-term goal is to clean the gas from the Petisovci field to supply the country’s national grid. Ascent says it remains on track to have a final update on its options by the end of the year.