Burberry Group PLC (LON:BRBY) reported final results that were slightly softer than expected but said sales from creative director Riccardo Tisci's first collections have received a “very encouraging” early customer reaction.
Having released Tisci’s debut runway collection to stores at the end of February, the fashion group said the one month before the year end had seen “excellent” wholesale sell-in and “strong” year-on-year growth.
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For the full year to 30 March, which had little impact from Tisci's touch, group revenues were flat as guided at £2.72bn, but down 1% if currency swings are ignored, while like-for-like retail sales were up 2%.
There was evidence of a slowdown in the key market of China, however, with revenue growth on the mainland slowing to a low single-digit percentage, while Hong Kong appeared to have gone into reverse in the second half. In the US, too, growth in the latter half was hit by softer footfall trends.
Adjusted operating profits were down 6% to £438mln, flat at constant currency rates and short of analyst forecast of £442mln. Adjusted diluted earnings per share were flat at 82.1p, which beat the 81.3p City consensus.
"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,” boasted chief executive Marco Gobbetti, who has been pursuing a plan to move the brand further upmarket since he joined two years ago.
A key part of this plan was the hiring of ex-Givenchy designer Tisci, under whose vision Burberry launched a “new creative vision with a refreshed logo and monogram and a new product aesthetic”, with the debut collection called ‘Kingdom’ supported by a huge marketing campaign and a partnership with Instagram as the social media app launched its new checkout facility.
“Although it is currently a small portion of our offer, the initial reaction from customers has been very positive with sales of the new collections delivering strong double-digit percentage growth.”
Gobbetti said the implementation of his plan was “on track” and the group was “energised by the early results”, leading him to confirm the outlook for the 2020 financial year, with flat revenue and adjusted operating margin, but a more pronounced weighting of profit to the second half than seen in the past year.
The Italian boss, backed by net cash in the coffers of £837mln, also announced a share buyback of £150m.
Mixed feelings for analysts
Some analysts were disappointed in the sales and others were let down by underlying earnings (EBIT), with UBS noting that at £260mln it was 1.5% lower than consensus £264mln.
The slowdown in China was of concern too, with Richard Hunter, head of markets at interactive investor, saying this was hardly helpful given the scale of the planned changes.
“Growth in its key Asia Pacific region, which accounts for 41% of revenues, is still in evidence but is more subdued, potentially exacerbated by the ongoing spat between the US and China and the economic consequences. Growth in the US itself is also soft, the gross margin has suffered after further investment in the business and foreign exchange headwinds, and the guidance provided by the company paints nothing more than a picture of broadly stable revenues in the nearer term.”
Sophie Lund-Yates, analyst at Hargreaves Lansdown, said the company had a long way to go to reach its goals: “When we think of Burberry, most of us think of luxury, but what a lot of people don’t realise is Burberry doesn’t see itself as quite elite enough. The high end brand occupies the middle ground between the likes of Dior and Versace and Michael Kors or Ted Baker, and it wants to break out of that space – upwards.
“That aspiration makes sense, the higher up the fashion chain you go, the better the margins. However, the trouble is a lot’s been thrown at this plan, including heavy investment and the cancellation of non-luxury retail partners, and all that means sales and profits are taking a hit. We like where Burberry is going, but the journey could be a rocky one.”
She saw the hefty cash pile as good news as Gobbetti invests in the turnaround, but has plenty on hand for now to pay an increasing dividend.
"All-in-all, a rise in retail like-for-sales this time around isn’t to be sniffed at. As ever though, Burberry’s growth potential sits in the Far East, and it’s for that reason the group actually chose China to open a handful of new shops, with sales in the region growing steadily.”
Shares in Burberry were down 4.5% to 1,835p by mid morning on Thursday.