Burberry Lifting Luxury Sector

Impressive rebound in sector's valuations on strong Americas and Chinese stimulus hopes

Burberry shares up 15% after better-than-feared revenue in latest quarter. Comps were down 4% at constant FX vs. -12% expected. Results are lifting the entire luxury sector once again. Americas were up 4%, EMEA -2% but stabilizing, Mainland China posted -7%, Japan was up a decent 4%. Sequential improvement is driven by recent management actions, and what seems to be a stabilizing backdrop with very solid performance in Americas for other luxury brands.

Burberry’s Press Release

High-end luxury is one of our core investment themes, but as always, one has to be very picky. In our Q4 Letter to Our Partners, we called out the following:

Today, Hermès’ valuation shot up to a level that equals 54.0x underlying NOPAT (FY25), based on an assumed 14% constant FX revenue growth and 60 bps in EBIT margin expansion. For FY26, valuation is projected to drop to 47.7x NOPAT. These are quite lofty multiples, as - not that long ago - we were looking at 39.0x and 34.4x respectively. What should get a conservative investor worried is that with higher valuations comes increased volatility. We rarely trim, but only for poor forward risk/reward reasons.

Let’s take a look at this bell-weather name.