Shares in luxury retailer Burberry BRBY jumped more than 6% today on reports that Italian rival Moncler is mulling an acquisition of the struggling British stalwart.
An independent fashion industry publication reported the news, which immediately sent Burberry’s stock price upwards after months of downbeat earnings and sales disappointments.
Will The Moncler-Burberry Deal go Ahead?
Jelena Sokolova, senior equity analyst at Morningstar, believes that Moncler would be getting a good deal from an acquisition.
“We believe there is about 70% upside to our fair value estimate for Burberry,” she says in a note.
“We believe Burberry is taking the first steps in the right direction strategically, with a marketing campaign that is focused on its iconic products like outerwear and scarves. This is where the brand strength lies, using humor and a good choice of influencers. We also believe the company is getting more pragmatic in terms of pricing.”
Morningstar is holding its Fair Value Estimate for Burberry at £13.30.
Key Morningstar Metrics For Burberry BRBY
However, Sokolova says Burberry still faces huge obstacles to success, including the low share of sales burdening its outerwear apparel, as well as increased competition from its rivals—Moncler included.
“Moncler has a strong track record in running outerwear businesses: the Moncler and Stone Island brands are geared to outerwear,” she explains.
“This is likely to strengthen Burberry’s focus on the core category and away from fashion and leather, where the brand has tried to pivot over the last 10 years.
“Moncler has also been an excellent marketeer without necessarily having the budget of the big luxury groups, which could also be put to use at Burberry.”
Why Has Burberry Been Struggling?
Burberry has suffered from the twin headwinds of a luxury slowdown in China and the Far East, and significant turnover in its C-suite.
Like its larger French luxury peer LVMH MC, Burberry’s bet on sustained luxury spending in the region has so far failed to pay off.
In August, the company was booted out of the FTSE 100 index after a sustained drop in its share price meant it was no longer one of the top 100 companies in the UK by market capitalisation.
Prior to that, Burberry had reported had reported weak sales revenue for the second quarter of 2024, with sales falling 21% year on year.
Sales in the Asia Pacific Region dropped 23%, while sales in mainland China fell by 21%. The disappointing results ultimately led to the British Luxury giant suspending its dividend.
Year to date, shares in Burberry are down 38.66%, and are currently trading at £8.58.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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