Burberry (Baa2, NR) 1Q Trading update

Unscheduled trading update ahead of the scheduled release on Friday. "The weakness we highlighted coming into FY25 has deepened and if the current trend persists through our Q2, we expect to report an operating loss for our first half."

1Q sales at £458 down 21% yoy and not from a Asia/China miss but on western regions coming weak.

• APAC was -23% within that Mainland China -21% while Japan +6%.
• Mgmt added global spending from Chinese held up better than mainland China (i.e. was diverted overseas). Japan obvious beneficiary of that.
• America down -23% while EMEA -16%; both are big misses.

• 1H operating loss (consensus closer to breakeven) and FY profit "below current consensus" (consensus bbg EBIT is at £310m, -26%yoy)
• Positive for us is dividend is suspended; it paid £233m last year, expectations this year were for £210.
• Wholesale guidance for 1H is unch at -25% (remember we are not sure how much of this is purposeful rotation away, mgmt indicated last earnings most of it was) and FY now is -30%.
• Capex is for £150m vs. £208m last year.

• It's dumping its 2 year in CEO effective immediately on "mutual agreement with board"

We are not sure why it got the support it did when it came to price its 30s... positive is BS is low levered and dividend cut is offsetting some of the now revised profit guidance BUT this is still a falling knife and is struggling to make money. It may be some time before we know if it's brands will pick up traction (most analyst are eyeing September when the next collection drops in stores). Expect large margin deleveraging on the headline falls as well on it's fixed cost make up.