A Good Brand, But the Price Has Run Ahead

Reporting in sterling. Earnings per share quoted in pence. Burberry’s financial year ends in late March. The tear-sheet history columns are labelled 2020–2025; the latest column (2025) is the most recent full year, and the 17 July trading update below is the following first quarter.

Burberry is the British luxury house — trench coats, the check, leather goods and accessories — with a genuinely global footprint. Mainland China takes around 22.6% of revenue and the wider Europe/Middle East/India/Africa (EMEIA) region around 25.5%, with the US around 18.1%, Asia-Pacific around 15%, and the UK now only around 8.4%. That diversification is a strength. I am looking at it now because the brand has been through a bruising couple of years, and a first-quarter trading update landed today (17 July) that lets me judge where the recovery is heading.

The peak was FY2023: turnover of £3,094m at a 70.6% gross margin, with reported EPS of 126.3p. From there it unravelled. Turnover slipped 4.1% in FY2024 and then fell hard — down 17.1% to £2,461m in FY2025 — while the gross margin collapsed from 70.6% to 62.5% and the business tipped into a statutory post-tax loss of £75m (reported EPS −20.9p). Net borrowing, which had already jumped to around £1,125m, stayed elevated at £1,111m. This was a brand caught mid-repositioning as luxury demand — especially in China — softened, with margin giving way as full-price sell-through weakened. It was a terrible year.

The update, released today, is a step in the right direction without being the decisive turn I would have hoped for. On a retail basis the Americas grew 12%, supported by local demand; Greater China grew 9%, another good figure; Asia-Pacific grew 3%, with South Korea strong at 11% but Japan down 2%; and EMEIA declined 3%, hit by the Middle East conflict and lower tourist spend. Overall comparable retail sales grew 5%, with retail revenue of £455m — up 5% reported and 4% at constant exchange rates against £433m a year earlier.

That is better than the collapsing sales of the prior year, but set against a very weak base it is not yet the emphatic recovery the valuation would need. On guidance, capital expenditure is expected to be around £120m for the year, wholesale revenue to grow at a high-single-digit percentage in the first half of FY2027 (upgraded from the mid-single-digit pace guided at the start of the year), and an adjusting restructuring charge of around £5m. On balance I found it slightly disappointing.

Six-year record (£m unless stated)

My opinion is that this is a good brand going through a bad patch, with the first initial evidence that the worst is behind it. There is balance-sheet repair — net borrowing has been coming down — and the Q1 regional numbers, particularly the Americas and Greater China, show that demand is not gone. But the profit has been badly dented: an operating profit of just £26m in the latest year against £634m at the peak, and a gross margin still well short of its former high. Short interest, which ran into double digits, has eased but is not cleared.

The valuation rests on a normalised earnings figure rather than the depressed reported result. I expect revenue to recover to around £2.6bn over the next year or two at roughly a 9.9% profit-on-turnover margin — close to what Burberry managed in 2024 — which implies normalised earnings of about 65.14p a share; I have not tried to time that recovery within the valuation. On an 8.00x multiple that gives a formula valuation of 604.50p against a current price of 1,082.00p — a value opportunity of −44.1%.

Valuation snapshot (MAEP, tear sheet 260721)

There are green shoots of recovery, and the share price has run on that hope, but I think the market is overvaluing the potential: the weaknesses that hit profitability have not gone away. My conclusion is that the shares remain hugely overvalued — a Sell, graded B, at 50% probability.

• A genuine, faster recovery: If the Americas and Greater China momentum accelerates and margins rebuild quicker than I expect, normalised earnings could beat my 65.14p — and the shares would look less overvalued than my numbers say.
• Margin recovery: Luxury margins can snap back sharply once full-price sell-through returns. A move back towards the old 70%-plus gross margin would materially lift the earnings base.
• A short squeeze: Short interest that ran into double digits and has only partly cleared could fuel a sharp upward move on any strong print — a risk to a bearish stance regardless of the fundamentals.
• Bid interest: A distressed-but-iconic luxury brand mid-turnaround is exactly the kind of asset that attracts an approach, which could crystallise value above my valuation.

• Sustained margin repair: Two or three quarters of gross margin rebuilding towards the high-60s would tell me the normalised earnings base is higher than 65.14p.
• Broad-based comparable growth: Recovery led by more than one or two regions — EMEIA turning positive alongside the Americas and China — would show the turn is structural, not a low-base bounce.
• A materially lower entry price: Nearer my 604.50p valuation, the risk/reward flips. The issue is price, not the brand.