Gold rated UK equities investor Nick Train remains confident in the growth potential of luxury retail group Burberry (BRBY) despite of the brand’s recent sales decline. Train reassured investors this week that that strong brand recognition was more important than short term disappointment in earnings growth.
“Burberry is unique within the UK stock market,” Train, manager of the Gold Rated Finsbury Growth & Income Trust (FGT), told Morningstar on Tuesday.
“There is no other global luxury brand of Burberry’s scale available for UK investors, and there are very few in the world. So, yes, we like it a lot and we have been buying more.”
The luxury retail group now makes up 5.4% of the trust, and is one of the 20 companies held in the trust which founded more than 100 years ago.
There have been concerns over slower growth in Burberry’s global sales. Last week the company warned of the challenges in the year ahead and revealed its sales declined in the six months to the end of March, driven mainly by Hong Kong and Macau’s weak sales growth and a decline of sales to customers travelling to Europe.
Reporting a 1% fall in wholesale revenue, the company said its licensing revenue also fell in line with its expectations amid reductions to licensing income in Japan while sales growth continued in China, Korea and Japan.
“Shareholders Should Be Grateful for Consumer Loyalty”
Instead of looking at the downturn in global sales, Train stated that brand recognition is “more important than a big disappointment on a one year view in earnings in one part of the world”. Train and his team have been following Burberry in the list of the world’s most valuable brands rated by a brand agency Interbrand.
Burberry is ranked 73th in the list of 100, and the growing brand recognition to the brand was an important driver to produce consistent returns in the long term.
“If you can find a company whose products are so beloved by their consumers that they prepared to tattoo that brand onto their bodies, then you know it will be a real stock market winner,” Train said, “Shareholders should be grateful for that sort of consumers’ loyalty. It delivered terrific returns over time.”
Morningstar equity analyst Paul Swinand agrees, saying the strong brand image of Burberry’s goods would be very hard for its competitors to imitate and the company’s investment in popular culture and music exhibitions are “long-term positives for Burberry’s long-run brand assets”.
Swinand also predicted that despite of the slowdown in store growth, the long-run opportunity for luxury brands in China remains, given an estimate that China’s consuming class will grow from 500 million to approximately 900 million by end of the decade. He believed that Chinese tourist traffic declines may be temporary. The stock is currently rated as a four-star undervalued stock by Morningstar analysts.
Burberry shares were down 0.5% at 1286p at 11:30am in London. The stock has risen 1.1% year to date.
