Burberry hails transformation progress despite sluggish results
Burberry was upbeat as it reported preliminary results for the year to March 30 on Thursday morning and while the figures weren’t spectacular, it has to be remembered that the company is investing heavily in transforming itself into a much more luxury-focused entity and these things do take time.
“We made excellent progress in the first year of our plan to transform Burberry, while at the same time delivering financial performance in line with expectations,” CEO Marco Gobbetti said. “Riccardo Tisci's first collections arrived in stores at the end of February and the initial reaction from customers is very encouraging. The implementation of our plan is on track, we are energised by the early results and we confirm our outlook for FY 2020.”
So let’s look at the figures that drove his optimism. Revenue rose 1% currency-neutral (CN) but was flat on a reported basis at £2.72bn. Excluding beauty wholesale (you’ll remember that the company moved its in-house beauty ops to Coty), revenue rose 2% both reported and CN. Like-for-like retail sales rose 2% with total retail sales flat at £2.186bn. And wholesale, excluding beauty, was up 7% CN or 8% reported.
In fact, wholesale was slightly ahead of expectations due to shipment timings and really benefited in Asia Pacific with “exceptional growth supported by strong Chinese spending in travel retail.” EMEIA also managed to rise in mid-single-digits with “growth from luxury doors more than offsetting the closures of non-luxury doors.” But The Americas declined by a mid-single-digit percentage impacted by the exit from those non-luxury locations in H2.
Adjusted operating profit fell 6% to £438m, while actual operating profit rose 7% to £437m. The gross margin fell 100bps, dented by currency exchange effects and “growing investment in product.” But the company was helped by cost savings.
And it continues to expect “broadly stable” revenue and adjusted operating margin CN for the 2020 financial year.
On the surface, a far-from-spectacular report, but it was a year in which a lot happened as the firm reshaped itself into something more closely resembling the giants of European luxury goods, rather than the Burberry of old.
And, as the earning's report's strong wholesale focus shows, its new approach seems to be having a big impact on this channel in particular with “excellent wholesale sell-in” of new collections and “strong double-digit percentage growth year-on-year from Riccardo Tisci's first collections.”
The transformation has also seen the company putting a heavy focus on digital and introducing the B-Series limited-edition monthly drops sold on social platforms, while partnering with Instagram on the Checkout launch for in-app Instagram shopping.
In the directly-operated physical space, it has been refreshing its stores and closing 38 smaller, non-strategic retail stores, a process that will continue this year.
While all of this may not yet be feeding though into higher sales and booming profits, the company said it has “helped reignite brand heat and significantly shift consumer perceptions of Burberry” with new 3m new social media followers “and significantly increased engagement on Instagram.”
On the product front, the company said a full-look merchandising initiative has driven improvements in cross-selling, benefiting tops, skirts and trousers. And customers “responded positively to new bags,” although the overall category performance “was impacted by softness in older lines.”
Regionally, the performance varied quite widely. In Asia Pacific, for instance, low-single-digit growth wasn’t that impressive and even the booming Chinese market only managed to rise in low-single-digits too. Chinese tourists are key to growth (or lack of it) in the region and that can be seen by Japan declining in low-single-digits on softer tourist flows towards the end of the year. But Korea got boost from more Chinese tourist visits.
In the important EMEIA region, the UK delivered mid-single-digit growth, benefiting from improved tourist spending in the second half, but continental Europe grew only in low-single-digits and the Middle East declined, “impacted by the macro-environment.”
Meanwhile the US grew in low-single-digits with the second half hurt by softer local footfall. Tourist flows also remained subdued last year.
All this makes it clear that ‘new’ Burberry remains a work in progress, but it seems to be getting closer to where it wants to be. We await further developments with interest.
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