In a significant development for the British luxury fashion industry, Burberry Group has been removed from the U.K.’s FTSE 100 index, marking the end of a 15-year tenure in the prestigious blue-chip listing. The company will now be listed on the FTSE 250, following a quarterly rebalancing by index provider FTSE Russell. The changes will take effect after the close of trading on September 20 and officially be in place from September 23.
This demotion is a new setback for the 168-year-old retailer, which has been grappling with a dramatic decline in its share price, down more than 53% year-to-date and around 70% over the past year. The company’s current market capitalization of £2.34 billion ($3.06 billion) now places it below both FTSE 100 and many top FTSE 250 constituents. Consequently, funds that track the FTSE 100 will be forced to sell their Burberry holdings.
Burberry’s removal from the FTSE 100 underscores ongoing challenges for the historic brand, which has struggled with waning sales and high-profile management changes. Founded in Basingstoke, England, in 1856, Burberry gained global recognition with its iconic trench coats and distinctive check print. However, the brand’s high-end appeal was compromised by the widespread adoption of its signature pattern by the British working class in the 1990s and 2000s, a trend that has undermined its luxury image.
Despite efforts by successive CEOs to reinvigorate the brand, including a notable attempt to elevate its market position, Burberry has not managed to regain its former prominence. The company has seen a revolving door of top executives, with four CEOs having held the position in the past decade, which has contributed to investor uncertainty.
The appointment of Joshua Schulman as CEO in July represents a potential turning point for Burberry. Schulman, formerly CEO of Coach and Michael Kors, is expected to shift the company’s strategy. Analysts like Luca Solca of Bernstein suggest that Schulman may pursue a “British Coach” approach, focusing on cost reductions, expanding outlet stores, and increasing exposure to off-price retail segments.
Solca believes this strategy could revitalize Burberry’s financial performance, which has suffered a 21% decline in first-quarter comparable store sales as reported in July. This decline led to the company’s third profit warning within a year and the suspension of dividend payments. Analysts at RBC have warned that without significant changes, Burberry may face further share price declines and potential market share losses.
In response to the current challenges, there is speculation that Schulman might take on additional responsibilities, such as the role of chairman, to streamline decision-making and implement his strategies more effectively. Cole Smead, CEO of Smead Capital Management and a Burberry investor, has suggested that such a move, although unusual in the U.K., might be beneficial in accelerating the company’s turnaround.
Burberry’s difficulties are not isolated. The luxury sector as a whole has faced a prolonged downturn, exacerbated by inflationary pressures and economic uncertainty. Chinese luxury consumption, in particular, has been severely impacted. Other luxury brands like Hugo Boss and Kering have also revised their forecasts downward, citing weak sales in key markets like the U.K. and China. In contrast, brands like Cartier and Hermes have reported strong performance, highlighting the sector’s uneven recovery.
Smead is optimistic about Burberry’s prospects, viewing the current challenges as an opportunity for the company to address its issues more promptly than its competitors. He believes that with effective leadership and strategic changes, Burberry has the potential to return to the FTSE 100 and recover from its current predicament. However, he cautions that a return to large dividend payments may not be immediate, given the prior missteps in dividend management.
Burberry is expected to provide an update on its financial performance with its half-year results due out on November 14. As the company navigates these turbulent times, all eyes will be on Schulman’s strategic plans and the impact of recent leadership changes on the brand’s recovery trajectory.
I am Aparna Sahu
Investment Specialist and Financial Writer
With 2 years of experience in the financial sector, Aparna brings a wealth of knowledge and insight to Investor Welcome. As an accomplished author and investment specialist, Aparna has a passion for demystifying complex financial concepts and empowering investors with actionable strategies. She has been featured in relevant publications, if any, and is dedicated to providing clear, evidence-based analysis that helps clients make informed investment decisions. Aparna holds a relevant degree or certification and is committed to staying ahead of market trends to deliver the most up-to-date advice.
