Burberry returns to the UK blue chip index after a year. What's next?

Burberry is set to return to the FTSE 100 index after a year's absence. A capitalization growth of more than 70% - led by Joshua Shulman, who is focusing on returning the brand to its British identity - has allowed the company to strengthen its position and reappear in the blue chip index. This is expected to boost investor interest and support Burberry's shares.

A year after luxury goods maker Burberry lost its place in the UK blue chip index, it is returning to the elite of the UK stock market, Bloomberg reports citing FTSE Russell. The company, best known for its plaid trench coats, will re-enter the FTSE 100 index starting September 22, Reuters specifies.

The company's shares rose by 0.8% at the opening of trading in London, but then lost the growth and went down by 1.8%. Since the beginning of the year, the company's market value has jumped by 30%.

Burberry lost its place in the FTSE 100 index shortly after Joshua Shulman joined the company as CEO in 2024. At that point, the brand was facing a failed strategy, falling sales and profits, and the stock had collapsed more than 76% since its peak in April 2023, Bloomberg wrote. Burberry's capitalization has fallen below the level needed to remain on the blue-chip list, and the company has dropped out after 15 years on the list. However, a more than 70 percent rise in quotations under Shulman's leadership lifted the luxury brand's market value to about £4.6 billion ($6.2 billion), allowing it to return to the index.

Shulman has successfully repositioned the brand to focus on its British roots and more aggressively promote the key outerwear categories of scarves and trench coats, which has helped it counter the general downturn in demand for luxury goods, Bloomberg explains. Burberry's sales declined less than expected, according to its second-quarter report. The most notable growth was in the Americas, where it grew 4% versus an expected 0.8%. The company attributed this to an influx of new customers. According to Shulman, lightweight jackets sold well, reflecting Burberry's strategy to strengthen its position in the outerwear segment.

The new head reversed the previous management's focus on promoting high-end handbags, a strategy that failed to resonate with customers, Bloomberg previously wrote.

"Burberry's return to the FTSE 100 will recognize the recovery in brand interest and demand that the new strategic direction supports," said Deutsche Bank analyst Adam Cochrane.

Inclusion in the index could spur additional demand for the company's shares from funds tracking its performance, Bloomberg noted. "Being in the index increases access to investors, especially passive investors, which will support the price after inclusion as they rebalance their portfolios," said Morningstar analyst Elena Sokolova.

Of the 20 analysts covering the fashion house's stock, the majority - 11 - are neutral and recommend holding it in a porftel (Hold rating). A month ago, the company had 10 such recommendations and seven recommendations to buy. Now six analysts offer to buy Burberry securities (Buy and Overweight ratings). Three of them advise to sell (Underweight and Sell).

Barclays on September 3 raised its target price on Burberry shares from 1250 to 1360 pence, while maintaining a neutral stance. The bank's forecast assumes growth of the stock by more than 8%.

This article was AI-translated and verified by a human editor