What’s Going On Here?Luxury brand Burberry rooted around to produce some, er, shabby chic results late last week – and investors could’ve sworn its dividend payouts were in there somewhere too… What Does This Mean?As the original COVID epicenter, China was the first to impose lockdown orders on its shoppers. That was particularly hard on the luxury sector – which makes a third of sales in the country – and a sign of things to come for Burberry: the British label said coronavirus forced more than half its global stores to close last quarter, cutting sales by 27%.
On the plus side, China’s now among the vanguard of lockdown-lifters, which might be why Burberry’s shares climbed 3% on Friday when management made positive noises about the outlook for Asian demand. Buyers of Burberry stock certainly seemed more optimistic than China’s own government, which abandoned its headline economic growth target altogether last week in the face of the pandemic. Why Should I Care?For markets: Red is the new black.
Burberry announced it was scrapping its dividend on Friday, joining a growing catalog of UK-listed companies that have cut shareholder payouts – including once-dependable dividend-distributors Shell and BT. Almost half the companies in the benchmark FTSE 100 have trimmed their payouts in an effort to hoard their cash, but yields on big US stocks are still triple those of bonds right now – the biggest gap in seven decades. Of course, bond payouts are fixed, while the Burberrys of the world can cut their dividends whenever they like…
The bigger picture: No tourists, no sales.
By cutting its dividend, Burberry will save itself nearly $150 million. That might be just as well: lots of European luxury brands rely on Chinese tourists to splash their cash while vacationing in Milan, Paris, or London, dahling. So until international travel returns, Burberry and the like have plenty more to worry about. | 