In a stark reflection of its recent financial woes, British luxury brand Burberry is poised to lose its place in the FTSE 100 index. The quarterly shake-up of the index, set to be announced next week, is expected to confirm Burberry’s demotion, as the company’s market value has fallen below the threshold required to maintain its position. Shares in Burberry have plummeted by nearly a third over the past three months, with the company now valued at a mere £2.5 billion. This significant drop in value comes amidst a global downturn in demand for luxury goods, which has also impacted rivals such as Kering, the Paris-listed owner of Gucci and Balenciaga, and the Aim-quoted Mulberry.
Joachim Klement, an analyst at Liberum, noted that Burberry’s exit from the FTSE 100 will have immediate consequences, stating, “In the immediate term, it will drop out a lot of index funds and index trackers will have to sell Burberry. In the very short term, the share price will be under pressure there.” Approximately 20 per cent of all equities in Britain are held in tracker funds, with the majority tracking the FTSE 100. As a result, funds will automatically sell shares in Burberry once it is removed from the index.
Burberry’s troubles extend beyond the general challenges faced by the luxury goods sector. The company has issued three profit warnings since the start of the year and recently removed Jonathan Akeroyd from his position as chief executive. In an attempt to cut costs, Burberry suspended its dividend and announced plans to cut around 400 UK-based jobs. The company has been striving to revive its fortunes for several years, with multiple leaders at the helm. Akeroyd’s two-and-a-half-year tenure saw an attempt to move Burberry from mid-market to upmarket. However, the brand has now enlisted Joshua Schulman, an American with experience in affordable luxury, to lead the business. Schulman’s background, which includes stints as the boss of Michael Kors and Coach, suggests that Burberry may be heading for another change in direction.
Other companies at risk of falling out of the FTSE 100 include easyJet and Mike Ashley’s Frasers Group. EasyJet has faced challenges such as softening demand for travel and rising input costs, while Frasers Group, with a market cap of £3.9 billion, is also vulnerable to demotion. On the other hand, Hiscox, the Lloyd’s of London insurer, could make a return to the FTSE 100 after a year in the FTSE 250, thanks to a 13 per cent rise in its share price since the start of 2024.
The final changes to the indices will be announced on September 4, but Klement believes that Burberry’s case is “really clear cut” due to its significantly lower value compared to the FTSE 100 requirements. The fate of Burberry ultimately lies in the hands of its current management and their ability to successfully execute a turnaround strategy.
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