We added to our Burberry position (LSE:BRBY). Burberry is down roughly 45% since our initiation report in February, with today marking a 16% drawdown on the news that the CEO is stepping down on the heels of another bad quarter (same store comps were down 20% yoy and the dividend was cut). When Akeroyd came to Burberry, the strategy was to go upscale to take advantage of the brand heat generated by the new creative director Daniel Lee. The strategy proved aggressive- their core customer was squeezed by both deteriorating financial conditions and higher priced items. Under the new CEO Joshua Schulman, who comes from a similar pedigree as Akeroyd- BRBY will re-focus on the entry market customer, widening their range of offerings while still maintaining their higher end items. Cost-cutting measures will also be implemented.
Fashion has an element of unpredictability and Burberry has been on the receiving end of it for the last several years. Combined with macro concerns and Burberry’s fashion mishaps, it is now radioactive to most investors. Its current price levels haven’t been seen since 2008. However, their current strategy over the long term is the right one. By embracing their heritage and increasing quality, demand will return and grow stronger over time. The exact timing of this recovery remains uncertain, providing an advantageous entry point to investors with a longer time horizon
Burberry stands as one of the top fashion brands globally and one of the very few premier English brands, with an almost 200-year legacy. Despite short-term pressures on their customer base, we believe they will recover and emerging markets such as India will drive the next phase of growth.
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