Burberry share price analysis after disappointing Q1 earnings

London FTSE 100

Burberry share price is down by more than 5% after the company released its worst quarterly results in decades. The shares are down by almost six per cent, becoming the worst-performing stock in the FTSE 100. At the current price of 1,660p, the shares are trading at their lowest level since June 1.

Burberry earnings disappoint

Burberry became the latest UK retailer to release weak earnings after Ocado. In a statement, the firm said that its same store sales dropped by a whopping 45% in the first quarter as the firm closed most of its stores. This decline was expected considering that the company sells non-essential items. In the statement, the firm said:

“In Q1, sales were severely impacted by the drop in luxury demand from COVID-19 and we expect it will take time to return to pre-crisis levels with the resumption of overseas travel. We are encouraged by the improving trends in all regions and the promising exit rate for June.”

Burberry made £257 million in the first quarter, down from £498 million in the same quarter last year. In Asia, revenue dropped by 10% in the quarter but it returned to growth in June. Sales in countries like China and South Korea have started to improve.

Meanwhile, in the EMEA region, the revenue declined by 75% while in the Americas, they fell by 70%. All products the company sells were affected by the decline. Also, it expects that retail sales will fall by between 15% to 20% in the second quarter and by between 40% and 50% in the second half of the year.

At the same time, the firm has announced several actions to boost its financial position. It has started to consolidate its offerings around ready-to-wear, accessories, and shoes. It is also attempting to woo more young people who tend to be focused on prices. Also, it is cutting jobs in its bid to conserve cash.

So, are Burberry shares a buy?

Burberry share price has dropped by more than 30% this year. In the past three months, the shares have jumped by more than 30% as investors remain optimistic about the global recovery. The upbeat economic numbers in China have helped boost momentum of the shares. Therefore, the current price means that investors are valuing the firm at more than £5 billion and a PE ratio of 19.74.

So, is it okay to buy Burberry shares? We believe that the iconic British brand will return to growth as the coronavirus pandemic fades. Recent information from Moderna showed that its vaccine is doing well. However, in the near term, we expect that there will be significant volatility in the stock as the number of cases continue to rise.

Burberry share price analysis

Burberry share price declined to an intraday low of 1,457, which is the lowest level since June 1. As it dropped, the price moved below the important support at 1473, which was the lowest level on June 25.

Also, Burberry stock price has moved below the right shoulder of the head and shoulders pattern. More so, the price is below the 38.2% Fibonacci retracement level and below the 50-day and 100-day exponential moving averages.

Therefore, in the near term, I expect the shares to continue falling as bears target the 50% retracement. On the flip side, a move above yesterday’s low of 1525p will invalidate this trend.

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Burberry share price forecast

Burberry share price

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