Burberry upbeat as sales rise, new product scores
Burberry’s Q1 Trading update was closely watched on Tuesday, as updates from the company always are. But it was perhaps under even more scrutiny this time as this new financial year is the first one in which the post-Christopher Bailey vision for the brand will really be tested.
With Riccardo Tisci having been at the creative helm now for over a year, and CEO Marco Gobbetti for even longer, investors and analysts are looking for the company’s transformation plan to either start yielding results or at least to point to the time at which it will deliver rewards.
So what did we hear on Tuesday? The CEO spoke of higher sales and a “positive response to new product”. He said he had seen a “good quarter in our multi-year journey to transform Burberry. We increased the availability of products designed by Riccardo, while continuing to shift consumer perceptions of our brand and align our network to our new creative vision. The consumer response was very promising, delivering strong growth in our new collections. We are on track with our plans and we confirm our outlook for FY 2020.”
And it’s clear just how crucial the new (that is, Tisci-designed) product was in the 13 weeks to June 29. By June, the proportion of new product was around 50% of the mainline offer compared to just 10% to 15% back in March.
The response to the new product was strong in Burberry’s stores and while these are even more important under the current ultra-luxe strategy, wholesale can’t be ignored so it's encouraging that the response was also very positive in this channel. The company said many of its luxury wholesale doors “saw significantly higher sell-through compared to previous collections.”
Gobbetti added that the Tisci collections delivered “strong [Q1] double-digit percentage growth compared to prior year equivalent collections,” and with the proportion of new product increasing, this hints at more good news to come.
The CEO also said the company had “continued to build brand heat and shift consumer perceptions with improved social media traction, press coverage and organic endorsement from influencers.” Its traction across Instagram and WeChat continued to improve, “with growth in the number of followers and double-digit gains in the engagement rate per post compared to the previous quarter.”
What did this mean in terms of actual numbers? Well, the picture painted here is a reasonably strong one, if not spectacular. Retail revenue rose to £498m from £479m, a 4% increase at current exchange rates and a 2% rise on a currency-neutral basis. Like-for-like store sales rose 4%, better than the 3% of a year ago.
Those like-for-like figures were driven by the buzz around new product and that product really seemed to resonate in important growth markets. The company said that Asia Pacific comparable store sales grew by a high-single-digit percentage, driven by Mainland China that was up in the mid-teens. And EMEIA grew by a low-single-digit percentage, supported by tourist spend, which particularly boosted the UK.
While the Americas region was less buoyant, with flat sales, the important US market managed to grow by a low-single-digit percentage, although Canada was negatively impacted by a later markdown period.
The company saw a mixed performance across various product categories with womenswear and menswear both up by a double-digit percentage. But accessories declined “with the benefit from new styles more than offset by the softer performance of lines from previous collections,” suggesting that the faster the company moves to an all-Tisci offer, the better, as customers are clearly keen to buy into his new vision and they see the Bailey-helmed product as too much a part of Burberry’s past.
The company is maintaining its guidance for the 2020 financial year and as it has previously said, is expecting “a more pronounced weighting of operating profit in H2 relative to H1.”
FY20 is the second year of its multi-year plan to transform Burberry and all of the above seems to suggest to management that it’s on the right track.
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