LONDON — Shares of luxury goods institution Burberry Group plc (LON:BRBY) have posted decent gains in recent months, rising 6% since the start of the year in oft-turbulent trading.
And I believe that the stock should head convincingly higher as the firm’s strategy to boost retail store space and increase activity in exciting new geographies turbocharges growth.
Developing markets powering growth
Burberry Group plc (LON:BRBY) has undertaken a significant retail space expansion plan in recent times, and opened seven new stores and four concessions during the three months to Dec. 2012. This helped to drive retail sales 13% higher during the period, to 464 million pounds. The firm aims to boost retail space by 14% during the second half of the year ending March 2013, with an emphasis on new store openings in Asia-Pacific and Europe.
Indeed, the company is witnessing surging popularity in key emerging markets, and saw retail and wholesale revenues from Asia-Pacific rise more than 15% to 242 million pounds in the three months to Dec. 2012. In comparison, revenues from the Americas rose just 1% while turnover from Europe was flat. And Rest Of World revenues rose more than 10%.
Gear up for double-digit earnings growth
City analysts expect earnings per share (EPS) to rise 8% in the year ending March 2013 to 68 pence. The firm’s trading statement due on April 17 should yield clues regarding which. And forecasters expect growth to ratchet up from this year onward — EPS are predicted to rise 15% in 2014 to 78 pence before rising a further 14% in 2015 to 89 pence.
Burberry Group plc (LON:BRBY) currently trades on a price-to-earnings (P/E) ratio of 16.4 for this year, above a forward earnings multiple of 14.8 for the wider personal goods sector, but it is expected to fall to 14.4 in 2015. Indeed, the luxury goods firm’s position as an excellent value stock is underlined by a price/earnings to growth (PEG) readout of 1.1 and 1 for this year and next. A reading around 1 is generally classified as stellar value for money.