Will the luxury sector continue to grow as rapidly as it has done for the past decade? © Simon Dawson/Bloomberg

The irony of Burberry’s partnership with footballer turned food poverty campaigner Marcus Rashford to support youth charities won’t be lost on many. The UK luxury fashion house, famed for its signature tartan, has long ridden the trenchcoat tails of rising global wealth; the parallel development of growing income inequality has left many first world children hungry.

Indeed, Wednesday’s third-quarter results looked decidedly K-shaped. Rising sales in leather goods and outerwear, driven by demand in China, Korea and the US, meant Burberry recorded just a 9 per cent drop in year-on-year same-store sales in the three months to December 26.

But that is impressive when you remember that up to 15 per cent of the group’s stores were closed during various recent lockdowns. Pricing also held, with Burberry promising improved gross margins when it reports full-year results which, together with lower inventory levels, should mean improved cash flow.

Yet it wasn’t all good news for chief executive Marco Gobbetti. Despite rising more than 4 per cent following the update, Burberry’s shares are still a fifth off their pre-pandemic high of 23 quid.

Across the channel, French luxury house Richemont reported modest sales growth over the same period, thanks mainly to its jewellery divisions. Burberry investors may wonder why, with a resurgent Chinese market, it couldn’t repeat the same trick.

It’s fair to say comparisons to the competition highlight Burberry’s problems. The company has for the best part of three years been in the middle of a turnround under Mr Gobbetti that has yet to bear fruit. Despite a renewed focus on high-end items, its gross margins are still 5 percentage points lower than they were at the beginning of the 2010s.

To boot, top line growth was anaemic even before the pandemic hit. Some analysts are becoming impatient, with UBS’s Zuzanna Pusz pointing out that Mr Gobbetti’s plan “should be already translating to like-for-like sales growth,” noting rivals have managed such transformations.

The broader question of whether the luxury sector can continue on the same double-digit growth trajectory it has done for the past decade also looms.

Demand for coats with four-figure price tags, it goes without saying, comes from those who aren’t fretting about losing their livelihoods because of Covid. But China accounts for about a fifth global luxury demand and Beijing has emphasised domestic consumption in its new five-year plan.

Reading the macro tea leaves, however, feels unnecessary when Burberry is currently trading at 18 times 2021’s operating profits versus 20 and 35 times for rivals Moncler and Prada. Even with its problems, at that price it feels like a punt worth taking.

Pineapple excess

US markets have led the boom in special purpose acquisition companies. But when it comes to writing blank cheques, the UK can still hold its own, writes Bryce Elder.

Take the curious case of Pineapple Power. Floated on Christmas Eve on London’s main list at 3p a share, the cash shell was this week trading above 13p on no news whatsoever. At its peak the stock had a market value more than five times the £1m it raised in December.

Pineapple says it wants to buy something in renewable energy. So might industry expertise on the board help explain the premium to cash? Not easily. No one involved is pretending that it’s anything other than an empty financial vessel with a few buzzwords attached.

Pineapple’s chairman is Claudio Morandi, who spent 2019 turning the Toronto-listed shell of a railways business into AMP German Cannabis, a medicinal weed importer. Company founders Clive de Larrabeiti and Peter Mills were once directors of Mayfair Mining & Minerals, which traded on the netherworld market of US pink sheets.

Mayfair may be remembered by UK investors for stumbling into a dispute with Cambridge Mineral Resources, having failed to complete a deal for some sulphide mines in Spain. It was kicked off the US market in 2011 after failing to provide financial reports for more than four years.

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Insiders who hold just over a quarter of Pineapple’s share capital are locked in for the moment. But nearly half the stock ended up with brokerage clients, including an 11.6 per cent stake held by an unidentified customer of IG Markets. Trading volumes in recent days — well over half its shares in issue changed hands both on Tuesday and Wednesday — would suggest very few long-term holders among this cohort.

And who are the buyers? Social media posts speak of enthusiasm more than understanding. Perhaps some have followed the link in Pineapple’s Publication of Prospectus regulatory filing, which directs seemingly in error to the website of cryptocurrency miner Argo Blockchain.

UK-listed Spacs need to tread carefully. Regulators dislike any suspicion of deals being cooked up before flotation to circumvent their rules, so it’s wise to say nothing whatsoever for a month or two. Then, as soon as a reverse takeover becomes public, it almost always results in a stock suspension. An information vacuum between these points creates a hothouse for speculation — and it’s the ones drawn in late who are most at risk of getting the rough end of the pineapple.

Burberry: jamie.powell@ft.com
Pineapple Power: bryce.elder@ft.com


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