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Published
Jan 17, 2018
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Burberry update: good but not great, luxury customers return, digital rises

Published
Jan 17, 2018

There’s been a lot of speculation this week about just what Burberry’s Q3 trading update would offer up, with the consensus being that it would be good news. So was it? Yes and no.


Burberry spring 2017 - Fall-Winter2017 - Womenswear - Londres - © PixelFormula



The figures were generally positive but they were far from stellar and show that this is still a business going through a lot of change and working to reshape itself for a world that’s changing too.

The company said the three months to December 31 saw it “on track for next phase of its transformation”, which for anyone who can’t remember means a "multi-year plan to establish our position firmly in luxury by re-energising our product, our communication and the customer experience.”

So let’s look at the headline figures. Comparable stores sales rose 2% in the period, down from a 3% rise a year ago and less than the 3% rise analysts had predicted. But at least they were in positive territory. Underlying retail revenue rose, but only by 1%, and on a reported basis (that is, with exchange rate impacts included), they actually fell 2% to £719 million.

REGIONAL VARIATIONS

Not that this was really bad news. The company’s EMEIA region comp sales may have declined by a low-single-digit percentage, but the figures were impacted by tough UK comparisons. You may remember that the business got a one-off boost a year earlier after the pound’s plunge following the Brexit vote. That skewed any comparisons and the UK actually declined by a high-single-digit percentage this time as the anniversary of its prior-year 40% rise happened. 

Elsewhere, the news was better. Continental Europe grew and the Middle East improved, while Asia Pacific comps rose by a mid-single-digit percentage. Mainland China grew at the same rate, although Hong Kong was broadly flat but with “improved domestic trends”. 


- Burberry

Even comps across the Americas grew by a low-single-digit percentage, and although the US specifically was flat, that’s not a Burberry-specific issue as the wider luxury sector has struggled there in recent periods, hurt by lower tourist traffic.

Burberry said that highlights of the quarter included creative collaborations across events, social and other media with Adwoa Aboah, Blondey McCoy, Cara Delevingne, Danny Sangra, Ibrahim Kamara and Kris Wu.

But what was really important compared to these social media-friendly highlights, was the fact that the business saw the continuing return of top-spending customers, which led its growth “aided by deeper, more personalised service.”

Also crucial was further “good growth” in direct-to-consumer digital sales, led by Asia Pacific. Burberry has certainly been one of the more pro-active names in the luxury sector in making the most of digital opportunities. Growth was led by Asia Pacific and mobile transactions represented around 40% of revenue.

The company also said it had started “initial engagement with wholesale partners in the US and EMEIA”. Now, we all know it has been operating a wholesale business for many years. But its new strategy will see it making changes as it focuses on more tightly controlled, luxury-focused wholesale customers.

PRODUCT POWER

Those developments will feed through into future results, but for now, the company’s existing initiatives seem to be getting a positive reception. Burberry said that fashion outperformed during the quarter “as customers responded positively to new products across categories.”


- Burberry



Its improved outfit offer and full-look merchandising “showed positive early results with tops, skirts and trousers outperforming”. And it’s preparing for new bag launches starting this spring.

Taking all that into account, it kept its guidance for FY2018 operating profit unchanged and “continues to expect to remain strongly cash generative”. It’s also still on track to deliver cumulative cost savings of £60m in FY 2018.

And a final word from CEO Marco Gobbetti? "We are making good progress embedding our strategic vision into the organisation and remain on track to meet our full-year profit target. We are building on strong foundations and are fully focused on the successful delivery of our multi-year plan to position Burberry firmly in luxury and deliver long-term sustainable value." 

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