Yesterday, I wrote about my confusion around Marks and Spencers (LSE: MKS) trading update. The tone of the report was fairly upbeat. The results, save for the international division, were good. Although there were concerns about challenging conditions ahead, the report made it clear that full year results would be consistent with market expectations.
The Marks and Spencer share price fell by about 5% yesterday. Maybe it was jitters about US CPI data feeding into a predominantly UK based high street brand, but then again the FTSE 100 and FTSE 250 finished the day fairly flat. Or maybe its that market expectations are that expectations will be beaten. Who knows.
Burberry stock trading update
Burberry (LSE: BRBY) released its trading update today. The Burberry share price is down 8% at the time of writing. However, in this case the trading report contained a profit warning.
The slowdown in luxury demand is having an impact on current trading. In this context, we now expect adjusted operating profit for the financial year ended 30 March 2024 to be in the range of £410m to £460m, below previous guidance.
Based on foreign exchange rates effective as of 29 December 2023, we now expect a currency headwind of c.£120m to revenue and c.£60m to adjusted operating profit.
Burberry Group PLC Trading Update 12 January 2024
Although the company is still confident of hitting its long term £4bn revenue target, and says it is still in the middle of transition to “a new British luxury creative expression” for the company, of course, markets have to be short term in outlook and overact to everything. Fine. But at least here there are reasons to be jittery if you judge stocks on a three month horizon (at best).
Remarksable
Sometimes investing and markets confuse me. A 5% drop for Marks and Spencer yesterday for an expectation meeting trading update, and an 8% drop for a trading statement that includes a profit waring, do not make sense to me.
You could argue that the military action in the region of the red sea has something to do with this. Both companies send and receive goods along that waterway. But, that doesn’t help to explain Marks and Spencers price drop. And what is the effect on the Burberry share price action today? Has it made shipping safer and narrowed the differential. Has it made shipping costs higher because routes that go around the Cape of Good Hope, making the differential larger, in which case expectation meeting and profit waring statements are treated about the same. It doesn’t make much sense to me.
Do I sell Marks and Spencer and Burberry stock?
I own both of these companies. So, I might just be bitter about taking a hit on my position values. And although I consider myself to have a longer term outlook, trading and other major unscheduled operational updates seem like reasonable points to consider my position. Having a long term outlook does not mean having to hold blindly to a stock even as the company implodes in the short term.
No, trading updates like this are good jumping off points if need be. If there are indications that the long term outlook is compromised then thats a good reason to sell. I just won’t be inclined to sell because the next couple of months are going to be rough.
Marks and Spencer stock seems fine for me. I am happy to hold even as the drop yesterday continues to annoy. Burberry stock on the other hand, I am not so sure about. It down 44% over the last 12 months. I’m not down that much but its not far off. There is the forward dividend yield of 4.7%, that admittedly does little to offset the share price decline, but it’s something, and there have been no hints of that being under imminent threat. My decision is to stick. I have previously trimmed this one anyway. It’s still a good brand in my view. The share price is right around its pandemic lows, and I feel that if I were not invested now, at this price, I would be thinking about getting in.
DISCLAIMER: James J. McCombie owns shares in Marks and Spencer and Burberry. The Storied Investor has no beneficial ownership position in any of the stocks or securities mentioned. No comment in this article should be construed as a recommendation of, or opinion regarding the future performance of, any stock or security or collection of them mentioned herein. Opinions expressed are the author’s and do not represent the views of The Storied Investor.
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