Burberry Group Plc is about to quit the FTSE 100 Index, capping the luxury goods company’s 15-year run in the UK blue-chip gauge.
Burberry’s shares have fallen by a third in the last three months, owing to an industry-wide downturn in demand and a faltering brand redesign, sending the company falling down the market-value rankings used by index compiler FTSE Russell to decide benchmark revisions.
Burberry’s market capitalization of £2.5 billion ($3.3 billion) places it 140th in the FTSE 350 Index of the UK’s major and midcap firms, ahead of the quarterly publication of provisional index revisions on Tuesday. That is significantly below the level required to maintain its position in the FTSE 100, which it has been a part of since September 2009.
Burberry “looks a shoe-in for relegation from the FTSE 100,” according to Susannah Streeter, head of money and markets at Hargreaves Lansdown.
Burberry has been especially badly hit by the luxury industry’s demand slump, notably in the crucial Chinese market. This resulted in a recent profit warning from the British company, which did not immediately respond to a request for comment.
However, its problems have been decades in the making.
Burberry, best known for its trench coats with their unique checkered lining, has struggled to compete with French high-fashion houses such as Louis Vuitton and Hermes. Frequent leadership changes have also hampered the company’s performance, with the most recent CEO replaced only last month.
The brand’s problems to connect with customers, particularly in the inflation-stricken aspirational market, have been matched by declining sales. Its shares have performed significantly worse than those of other high-end product manufacturers who are also attempting to revitalize their brands. Kering SA, the owner of Gucci, and Hugo Boss AG, based in Germany, have plummeted 35% and 42% this year, respectively.
“Burberry’s investment case remains under pressure, with the brand now entering uncharted territory of navigating a restructuring while remaining committed to positioning itself as a ‘true luxury’ brand,” UBS Group AG analyst Zuzanna Pusz wrote in a note last month following the company’s profit warning and dividend suspension.
According to FTSE Russell criteria, a stock will be withdrawn from the FTSE 100 if its market capitalization ranks 111th or lower among eligible shares at the time of rebalancing, while those that rise to 90th or above would be added to the index.
Insurance company Hiscox Ltd. is a strong contender to replace Burberry, according to Streeter of Hargreaves Lansdown. According to Bloomberg data, Hiscox is one of the top-ranked stocks that aren’t already in the index.
The final revisions to the index will be disclosed on September 4, after European markets close.
