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Burberry may be target for bidders as chief executive leaves

The trenchcoat designer may become a target even if sales have improved recently

Burberry Group PLC - Burberry may be target for bidders as chief executive leaves

Burberry Group PLC's (LON:BRBY) share price fall signalled that the departure of chief executive Marco Gobbetti has been a shock to the system, while some investors may be fearing a takeover.

The 62-year-old fashion veteran is ending a four-year tenure to join competitor Salvatore Ferragamo, where he will hold the same role, by the end of 2021.

READ: Burberry chief executive jumps ship to join rival

“The good news is there seems to be nothing malign behind the decision, merely an understandable desire to return to his native Italy after a period when travelling to catch up with friends and family has been very difficult, if not impossible,” said says AJ Bell investment director Russ Mould.

“The best CEOs set tone and culture and allocate capital, both human and financial. Investors clearly feel Mr Gobbetti has done well in his tenure, especially given the additional challenges posed by the pandemic and global downturn.”

Gobbetti led the turnaround of the trenchcoat designer, including a focus on full-price sales with fewer discounts and strengthening the brand’s presence in China.

This strategy has helped to offset wider losses during the pandemic, with revenue after falling 10% to £2.3bn in the year to 27 March hit by COVID-19 restrictions. It’s expected to grow 8-9% in the current year.

But his farewell has raised many a question on the future of the company.

On the design side, many are wondering whether fellow Italian Riccardo Tisci, hired by him as a chief creative officer in 2018, will also leave for new pastures, potentially causing even more shock at the London HQ.

On the business side, Burberry may now become a target amid the consolidation in the luxury sector and a weaker performance compared to its peers.

The stock is a ‘sell’ for UBS, as the recent improvements in trading are “too insignificant to signal a sustained trend” amid “increasing doubts about the strength of its underlying performance”.

In a note published last week, the investment bank noted that Burberry jumped by 24.1% in the year to date, underperforming the wider European luxury sector which was up 26.7%.

The market is worried about weak trading amid fears of wallet share shifting away from luxury in favour of experiences, while the next earnings season will face tough comparatives from last year.

And although Gobbetti will work with chairman Gerry Murphy to ensure an orderly transition, the company is in a position of weak leadership that might make it easier for a bidder to swoop in.

Shares plunged 8% to 2,068.4p on Monday afternoon, 11% below pre-pandemic levels despite a 50% recovery since March 2020.

Quick facts: Burberry Group PLC

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Price: 1797.5 GBX

Market Cap: £7.28 billion

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