Burberry's Turnaround: A Strategic Rebound in a Sluggish Luxury Sector?

The luxury sector is in a state of flux. Burberry (BRBY.L), once synonymous with British elegance, has faced years of underperformance, but recent moves suggest a turning point. With cost restructuring, a renewed focus on core products, and a sector-wide slowdown pressuring peers, the brand is poised to reclaim its position. This analysis explores whether Burberry’s strategic pivot can deliver sustainable growth—and if now is the time to buy.

The Cost-Cutting Catalyst

Burberry’s turnaround hinges on aggressive cost discipline. In FY2025, the company slashed £24 million in operational expenses, targeting £100 million in cumulative savings by 2027. A key component: streamlining its global workforce, with ~1,700 roles cut. This restructuring has already begun to bear fruit. While Q1 FY2025 saw a 94% drop in adjusted operating profit to £26 million (due to weak demand), H2 improvements pushed the full-year result to a £67 million profit. The adjusted operating margin, which collapsed to 1.0% in FY2025 from 14.1% in FY2024, is now rebounding.

The savings are not merely about cutting staff. Real estate optimization (closing underperforming stores) and procurement efficiencies aim to reduce reliance on discounts—a critical step in preserving brand prestige. This focus on profitability over top-line growth contrasts sharply with peers like LVMH (MC.PA), which reported a 3% revenue decline in Q1 2025, and Kering (PRTP.PA), where Gucci’s sales fell 25%.

Brand Revitalization: Core Products and Sentiment

Burberry’s “Burberry Forward” strategy, launched in late 2023, has refocused the brand on its heritage. The company is doubling down on its iconic outerwear and scarves, categories that outperformed group sales in Q4 FY2025. This shift aligns with broader luxury trends favoring timeless classics over fast fashion.

The results are measurable: brand sentiment improved, with outerwear sales rebounding 4% in Q4. This strategic clarity has also stabilized inventory—reducing overhang by 7%—and cut markdowns. CEO Joshua Shulman’s emphasis on storytelling and visual merchandising is paying dividends, as evidenced by Japan’s 6% retail sales growth (driven by tourist demand) and a 26% drop in South Korea’s sales reversed by H2’s brand repositioning.

Outperforming a Weakened Sector

While the luxury market faces headwinds—geopolitical risks, macroeconomic uncertainty—the sector’s struggles are uneven. Burberry’s Q1 FY2025 sales declined 22% at retail, but this outperformed LVMH’s 5% drop in fashion sales and Kering’s 14% group revenue fall. Crucially, Burberry’s margin expansion trajectory is stronger:

• Margin Improvement: After hitting a low of 1.0% in FY2025, the margin is projected to rebound as cost savings materialize.
• Regional Resilience: Asia-Pacific, Burberry’s largest market, saw a 16% FY2025 sales decline, but Q4 stabilization hints at recovery. Meanwhile, LVMH’s fashion division and Kering’s Gucci continue to struggle with double-digit drops.

Valuation: A Buy on Compressed Multiples

Burberry’s stock trades at a forward P/E of 15.6x, below LVMH’s 22x and Kering’s 20x. Post-restructuring, the cost base is leaner, and the dividend suspension (to preserve liquidity) signals long-term focus. With FY2026 margin targets achievable, valuation multiples could further compress, offering a compelling entry point.

Risks: The Storm Clouds Remain

• Macroeconomic Uncertainty: A U.S. consumer slowdown or China’s muted recovery could hit demand. Burberry’s Americas sales fell 9% in FY2025, and China’s sales dropped 15%.
• Execution Risks: The £60 million annual savings target depends on smooth restructuring, which could disrupt operations.
• Brand Saturation: Over-reliance on outerwear might limit growth if competitors copy its strategy.

Conclusion: A Buy with Caution

Burberry’s turnaround is no longer a pipe dream. Cost discipline, a refocused product strategy, and peer underperformance have created an asymmetric opportunity. While macro risks linger, the stock’s valuation and margin trajectory justify a buy, provided investors hold for the long term. As Shulman puts it: “This is about building a brand for the next century.” For now, the foundation is being laid.

Invest with discipline, exit with prudence.