Burberry happy as brand transformation sees strong response in first half
Burberry was upbeat on Thursday morning as it reported half-year results saying that its “brand repositioning is under way, with strong initial response” and that it’s “energised by the early results.”
And it added that “the initial response from influencers, press, buyers and customers to our new creative vision and Riccardo's debut collection, Kingdom, has been exceptional.”
So, all good news then, or was it? Well, not completely as there were some negatives on the balance sheet for the six months to September 29, although they were easily explained and didn’t really detract from the positive news.
Dealing with the figures first, revenue dipped 3% to £1.22bn and fell 2% currency-neutral. But excluding its beauty wholesale revenue (with beauty ops now handled by Coty rather than in-house), the figure switched from -3% to +3%.
Retail channel sales were flat at £944m but up 2% currency-neutral and comparable sales were up 3%, only slightly down on the 4% of a year ago. And it seems that the comps performance was stable across both Q1 and Q2, which is good news as plenty of companies have reported a downturn during Q2, hurt by the hot weather and late start to autumn.
Adjusted operating profit may have fallen 4% to £175m but the margin stayed the same and reported operating profit surged 36% to £173m. Pre-tax profit also rose 36% to £174m.
The company said it had seen a successful launch of its new go-to-market model (its monthly drops), “with social selling innovation contributing to building brand heat,” and that "consumer perception is shifting” with a “significant increase in engagement on Instagram and WeChat.” There's also been a “strong wholesale response to new product.”
It all means the company is maintaining its FY 2019 guidance, including delivery of cumulative cost savings of £100m.
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That’s all fairly impressive at a time when Burberry is undergoing a major transformation, with a new designer, a new focus on ultra-luxury, a new logo and a change to the way it drops its product.
And the company seems to be incredibly happy with what Tisci is doing to the brand. As mentioned, the show response was strong and Burberry said on Wednesday that its recent LFW show “was the second-most viewed show this season on Vogue.com and continues to be endorsed by some of the world's most followed influencers.”
Away from the runway, the firm’s switch to regular monthly drops via its B Series has got off to a good start too. It “sold out rapidly in China, prompted much higher levels of engagement online and attracted double the mix of new and younger customers to the brand than the February capsule.”
That’s encouraging as the firm preps for its collaboration with Vivienne Westwood available in December.
Away from the obviously headline-grabbing news, Burberry also said that "most discussions to evolve our wholesale distribution are now complete and the required changes to our third-party distribution network are expected to accelerate in the second half of the year. This will complement the work we have already started in our directly operated store network, having closed a net 19 stores in the last 12 months.”
But it also said that “while the early signs are encouraging, transitioning the product offer, evolving our distribution, changing wider consumer perception and seeing this translate into positive business performance will take time.”
All regions performed in the first half, but EMEIA was the weakest being only “broadly stable year-on-year”. The UK and Italy grew, with an improvement in the second quarter (again, very encouraging given the weather issues), while the Middle East “remained weak due to macro factors.”
But Asia Pacific grew by a mid-single-digit percentage. Mainland China grew and “Chinese spend shifted into Asian tourist destinations within the region particularly to Hong Kong and Korea.”
The Americas grew by a mid-single digit percentage and “performance in the US was consistent throughout the period with footfall up year-on-year.”
It also saw “good growth" in digital. Direct-to-consumer growth was led by Asia Pacific, while its Farfetch collaboration “continued to perform ahead of our expectations.”
As far as product was concerned, the company has seen “a positive response” to newly launched handbags “as we start to transform our leather offer,” and “within apparel, our more complete wardrobe offer and full look merchandising drove continued strength in tops, trousers and skirts. And the elevated polo shirt offer introduced in the summer also contributed to this strong performance.”
Meanwhile, in outerwear, the Car Coat “outperformed and our refreshed quilt programme also showed strength as customers continue to respond to innovation.”
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