After a tough year that battered the UK stock market, shares in two of the country’s largest FTSE 100 fashion names are now floundering near 52-week lows. As we enter 2024, I’m considering whether their low prices could recover and offer me a profitable opportunity for the year ahead.
The companies I’m talking about are JD Sports Fashion (LSE:JD.) and Burberry Group (LSE:BRBY).
JD Sports Fashion
JD Sports’ share price plummeted by 22% last week (4 January) after the sports and fashion retailer issued a profit warning. It said mild weather and heavy discounting affected Christmas season sales, prompting an adjustment of annual profits to 10% below previous guidance.
The announcement wiped more than £1.8bn off the value of JD Sports, making it the biggest FTSE 100 loser on the day and taking the share price below 120p. Not exactly a promising start to the year. But as one of the UK’s most prominent fashion retailers, I think JD Sports can recover from this blow.
Large and sudden price drops like this tend to skew financial estimates, making it difficult to rely on the accuracy of some recent forecasts that may use trailing data. Despite this, I have faith in projections that predict an earnings growth rate of 26% per year for JD Sports. After a similar share price plunge in mid-2022, the retail giant managed to make a spectacular recovery, nearly doubling its share price from 94p to 187p over a three-month period.
It’s worth noting that, with a dividend yield of only 0.8% and a 25% payout ratio, JD Sports isn’t a share I would choose to profit from dividends. But I do see it as a strong growth pick that should bounce back and as such, I would consider adding it to my portfolio.
Burberry Group
Burberry’s famous check has long been popular choice for both affluent and aspirational shoppers, both in the UK and globally. However, the 170-year-old, £5bn business has hit tough times as rising inflation affects even luxury consumers. Down 38% over the past 12 months, the Burberry share price is now the lowest it’s been since the pandemic in 2020, and almost 50% from last year’s high of £26.
So will 2024 bring better days for the high-end fashion brand?
Maybe. For one, analysts are already predicting that the Bank of England will cut interest rates in 2024 faster than previously expected, increasing consumer spending power and reinvigorating the retail economy. Furthermore, despite a recent slowdown, Burberry maintains a strong financial position. With liabilities well covered by assets, I think it has an acceptable debt to equity ratio of 35.1%.
However, with an annual earnings growth rate of only 4.4%, Burberry is behind the industry average of 8.8%. This is shown in its falling share price and would need to improve somewhat before I considered investing in the stock. I do think Burberry will bounce back as luxury retail recovers in 2024, but it might be a while before I see any decent returns.
