No EPS recovery at Burberry before 2019 at the earliest, SocGen says

The luxury fashion retailer failed to announce any "meaningful" net cost cuts alongside its latest full-year figures on Wednesday and multiple factors were set to weigh on the company's earnings per share as well, analysts Thierry Cota and Guillaume De Noyelle said in a research note sent to clients.

As well, reinvestment of part of the proceeds from (lower than forecast) cost cuts into operating expenditures was needed, SocGen said.

Yet, together with reduced benefits from foreign exchange translation benefits (£10m) and a £20m charge from the reinstatement of management bonuses meant profits before tax in fiscal year 2017 were set come in towards the bottom end of the analyst consensus range between £370m to £380m versus analysts' current forecast for £415m (SocGen: £435m).

Indeed, even the "at least £100m" in cost cuts over the next three years announced by the firm would result in between £20m-£30m in short-term costs in the then current fiscal year and about £60m over two years which neither SocGen nor the consensus had yet factored into their estimates, Cota and De Noyelle said.

In any case, the size of the cost cuts announced fell short of the approximately £200m which the French broker estimated were needed to bring the company into line with the sector's average spend on opex.

At 16.6%, Burberry's second half 2016 operating margins on an earnings before interest and tax basis were below the sector-weighted average of 17.2% and 18.1% for its fashion and diversified peers, SocGen added.

EPS growth in the following fiscal year was also to be hampered by further one-off costs of approximately £35m, higher savings reinvestment (£25-30m) and the potential for additional bonus reinstatements (£20m).

Cota and De Noyelle reiterated their 'hold' recommendation and 1,280p target price on the stock.