Burberry: Sales Helped by Chinese Buying at Home and Abroad As U.S. Demand Weakens

We are maintaining our fair value estimate of GBX 2,090 for narrow-moat Burberry as the company reported solid first-quarter revenue on a rather easy comparison base. First-quarter comparable sales were up 18% (1% in the first half of fiscal 2022/23), driven by the Asia-Pacific region and notably China, where the comparison base against last year is easy (first-quarter fiscal 2022/23 sales in mainland China were down 35% due to lockdowns and were up 46% in the reported quarter). South Pacific sales were up 39%, while sales in Japan were up 44%, helped by the return of traveling Chinese consumers. Overall, Chinese buying globally was up by midteens versus 2 years ago (a better comparison due to COVID-19-related lockdowns in the prior year). Sales in Europe, Middle East, and Africa were also solid, up 17%, thanks to tourism. The Americas was weak, supporting our view of deceleration in this market after 2 years of unusually strong growth, helped by a number of nonrecurring tailwinds. Sales in the Americas were down 8% and sales to U.S. consumers globally were down by a mid-single-digit percentage.