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I’ve been cheering on a UK stock that’s recovering from recent troubles at lightning speed, and I’m hoping there’s more action to come. The company in question is Burberry Group (LSE: BRBY). It used to reside in the FTSE 100 and now features in the FTSE 250. Although at the rate it’s going, not for long.
Its shares plunged as luxury-fashion sales fell, Chinese demand weakened and heavy discounting hit its premium image. I dived in after the first profit warning, only to find myself sitting on a quickfire 40% loss as its troubles intensified.
Burberry shares recover
Then the new broom management set out a strategy the market could embrace. It swung its focus back to ‘Timeless British Luxury’, streamlined product ranges and sharpened its brand appeal globally.
I was delighted when performance turned. The Burberry share price is up a stunning 75% over the last 12 months, although it’s still down 25% over two years. Personally, I’m now sitting on a 22% gain. Yet I’m a little baffled by the speed of recovery.
Salvaging a struggling company isn’t easy, and the job isn’t yet done. Also, China is still struggling while the US isn’t exactly booming. Investors seem to be pricing in a recovery that hasn’t happened yet.
FTSE 250 recovery star
The group’s most recent update on 18 July showed Q1 retail revenues still falling, 6% to £433m, as the macroeconomic backdrop remained “uncertain”. Store sales did rise 1% in its Europe, Middle East, India & Africa segment, and 4% in the Americas. But they dropped 5% in Greater China and 4% in Asia-Pacific.
On 9 October Deutsche Bank upgraded Burberry from Hold to Buy, and lifted its target price from 1,200p to 1,500p. Deutsche claimed “we are still in the early days of the sector recovery” and said what we really need is a Chinese recovery. It also echoed my own doubts about the recovery, claiming that its upgrade was a “leap of faith“.
Yet with French fashion giant LVMH springing back to life after a tough run, there are signs that sentiment is picking up across the luxury market.
China remains weak, but there are hopes of recovery in 2026, and a US trade deal would help here. There’s no dividend income on offer today, I’m afraid. When I bought Burberry, the trailing yield had just hit 6%, although I only ever got one payment before it was axed. We may have to be patient before it’s restored.
Waiting for results
We’ll get a clearer view of where Burberry is heading when it publishes interim results on 13 November. The share price has moved fast, but now the business has to play catch-up.
I’m not selling what is currently one of the most exciting momentum stocks in my portfolio. I think investors approaching the stock today should consider caution, as the group must now deliver to justify it improved reputation. I’ll sit tight, but won’t buy more.
