I purchased a camel-coloured trench coat and scarf from FTSE 250 vogue retailer Burberry (LSE: BRBY) in 1985 which might be nonetheless in good order. So, it’s becoming maybe that longstanding core gadgets like these are to be the mainstay of its turnaround technique.

The market additionally seems to assume so. This concept and a £40m annual cost-savings programme introduced within the 14 November interim outcomes helped push the shares larger.

What went unsuitable?

In its personal phrases, what went unsuitable for the British luxurious model is that it centered on being trendy on the expense of celebrating its heritage. It additionally raised costs.

This swap didn’t entice sufficient potential clients and alienated too many present ones. On this sense, the arrival of Covid exacerbated this failure somewhat than precipitated it. There was a spike in UK gross sales as soon as lockdowns had been lifted, however this didn’t final lengthy.

By the point of the Q1 2025 outcomes on 15 July, comparable retailer gross sales had been down 21% 12 months on 12 months (these are gross sales figures with the impression of openings, closures and refurbishments eliminated).

China — a key goal progress marketplace for Burberry — additionally struggled to rebound from the pandemic’s results. Mainland gross sales there fell 21% in Q1 alone.

Total, the agency’s retail income within the quarter dropped 22% to £458m and it suspended its dividend for this 12 months.

What’s the brand new plan?

The brand new ‘Burberry Forward’ plan refocuses on what made the agency profitable. This was being a extremely differentiated model with a singular heritage, significantly famous for its outerwear and scarves.

In sensible phrases, this implies shifting away from the unpopular daring colors and designs it launched. As a substitute, it should refocus its traditional design motifs, primarily based round camel and crimson colors and black verify designs.

With its core design foundations again, its CEO believes it may possibly return to producing £3bn in annual income over time.

The important thing danger right here in my opinion is that Burberry might discover it tough to get better the shoppers it has misplaced. Loyalty to a model is far more tough to construct (and rebuild) than it’s to lose, I feel.

So are the shares undervalued?

The inventory’s valuations on the important thing measures I’ve discovered most helpful over time are blended.

On the price-to-book ratio, it trades at 3.6 in opposition to a mean of three.1 for a selective competitor group. This includes Capri Holdings at 1.7, Kering at 1.8, Christian Dior at 4.3, and LVMH at 4.5.

Nonetheless, on the price-to-sales ratio it’s at 1.2 in opposition to the group common of 1.6, so it’s undervalued on this foundation.

I additionally ran a reduced money circulate analysis. Utilizing different analysts’ figures and my very own, this reveals Burberry shares are presently 25% undervalued at their current £8.51. So a good price is £11.35 though they might commerce decrease or larger than that.

Will I purchase the inventory?

I focus these days on shares with a excessive yield. As Burberry has suspended its dividend, it’s of no use to me on this foundation.

Its potential as a progress share additionally appears to be like unsure to me, given its relative inventory valuations. And I feel there’s a main query over whether or not it may possibly recoup the core clientele it misplaced.

So presently I’ve no plans to purchase the shares.