Burberry unveils significant transformation, propelling stock prices to a record high

• Heritage designs and statement pieces are the focus of Burberry's plan to increase sales, as announced on Thursday.
• On the announcement, shares experienced a 22% increase in value, marking their largest intraday rise.
• The luxury fashion house's ailing fortunes may be reversed with the analysts' welcoming of the plans as a potential "turning point."

The luxury fashion house in London is planning to revive its ailing fortunes by refocusing on heritage designs and statement pieces under sweeping revamp plans.

The "Burberry Forward" strategic overhaul, announced on Thursday, aims to reconnect the brand with its "original purpose" by adopting a more disciplined approach to product selection, with a focus on its iconic coats and scarves, the company stated.

The stock experienced its largest-ever intraday gain of over 22% after the announcement. At 15:34 p.m. London time, the stock was last seen up 17%. Despite this, shares have fallen around 39% year-to-date.

The embattled brand may have reached a "turning point," as analysts responded positively to the news.

Schulman unveils new vision

Under new CEO Joshua Schulman, who joined in July from Michael Kors, Burberry's repositioning plans offer the first glimpse into the brand's strategy.

Schulman stated that the company is taking immediate action to adjust course, stabilize the business, and set Burberry up for long-term profitability.

Schulman pointed out that the brand had strayed too far from its core products, which resulted in a disconnection from consumers and an overemphasis on niche products instead of heritage items. Additionally, he noted that the brand's "elevation strategy" had led to pricing issues, particularly in leather goods, that did not align with its market position.

With a clear framework in place, we can reignite brand desire, enhance our performance, and create long-term value. Confidently, I believe that Burberry's best days are yet to come.

Burberry's 2024 interim results, which saw sales fall 20% for the second consecutive quarter, included the delivery of plans.

A 'turning point' for embattled Burberry

Despite a broader slowdown in the luxury sector, with the personal luxury goods market projected to decline 2% this year, the underperformance of the company has been attributed to inherent flaws, with multiple CEOs failing to revive the brand and enhance its reputation.

Piral Dadhania, an analyst at RBC Capital Markets, stated that the overhaul plan on Thursday was long overdue and would enable the brand to focus on its core strengths.

In our view, we have been waiting for a strategy that emphasizes heritage and outerwear as it provides more authenticity in a less competitive category.

Quilter Cheviot's consumer discretionary analyst, Mamta Valechha, characterized the current situation as a "turning point" in a challenging period.

Thomas Chauvet, Citi's head of luxury goods equity research, anticipates significant alterations in product design, assortment, pricing architecture, distribution, and communication, while maintaining the global luxury brand positioning.

If Schulman adopts a "British Coach" strategy, he may use methods from his previous employer to target more aspirational consumers. This could involve doubling down on outlets and increasing exposure to off-price retailers.

The success of the overall strategy for the shift toward higher-end luxury Thursday will depend heavily on Schulman's ability to align his vision with that of the company's designers, according to Yanmei Tang, analyst at Third Bridge.

By adopting a strategy similar to Louis Vuitton, Burberry could balance its high-end, artistic collections with accessible, core items while maintaining its British heritage. The success of this approach will depend on the alignment of Schulman's business acumen and Lee's creative vision.

HSBC upgraded its rating for Bernstein, citing the company's positive outlook after the appointment of Schulman.