Burberry (BRBY) 719p

Loss to date: 44.3%

It’s never easy confronting a big loss, but we have to admit we were too early in calling the turn at mono-brand fashion firm Burberry (BRBY).

We said at the time there was risk involved given the company had issued two profit warnings, which tend not to be isolated events, but we felt with the shares having halved in the 12 months to February there wasn’t much further downside.

WHAT HAS HAPPENED SINCE WE SAID BUY?

Not only have there been more profit warnings, but the hoped-for recovery in the Chinese market has failed to materialise and the firm’s attempt to raise margins by hiking prices has done more damage than good.

Last week the company said trading in the three months to June was below forecasts due to the luxury market being ‘more challenging than expected’.

It also warned if the same trend persisted in the current quarter it would make an operating loss instead of a profit.

In an effort to right the ship, dividends have been suspended and chief executive Jonathan Akeroyd has been replaced by former Coach, Jimmy Choo and Michael Kors head Joshua Schulman, while the product offer will be ‘re-balanced’ to include a broader everyday luxury offer.

WHAT SHOULD INVESTORS DO NOW?

With the shares trading at 10-year lows the market is no longer valuing Burberry as a luxury brand, yet as Morningstar analyst Jelena Sokolova points out the luxury market is ‘going through one of its downcycles, which historically don’t last longer than one or two years, so we still see potential for Burberry to recover brand momentum’.

The chair and chief financial officer both bought shares following the sell-off, and we know of at least one City grandee who has been waiting for a pull-back to build a position, so we would encourage investors to stick with Burberry for the time being in the hope we are at a turning point. 

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