By  on April 19, 2017
Burberry Men’s and Women’s Fall 2017

LONDON — Burberry on Wednesday provided additional evidence that the Chinese fashion consumer is coming back.As the fashion group reported first-half revenues, it said Mainland China delivered “high single-digit” percentage growth, which accelerated throughout the period, fulfilling some analysts’ projections of a rebound in Chinese spending in 2016-17.On Wednesday, HSBC Global Research said in its Consumerama report that with the economy, retail sales and disposable income growing faster than consensus expectations in China, and at a rate not seen for the past two years, "it's no wonder luxury is picking up steam. Demand has been held back last year and with psychology turning, you can trust Chinese consumers abroad and at home will put their recently acquired feel-good factor to work.”The comment came on the heels of a fuller HSBC report last month, “A Dear Hunt: More Reasons Luxury Ain’t Cheap,” that called Mainland China “the brightest spot for the industry” in 2016. Published in March, the report said luxury consumption was being fueled by shoppers' fears of terrorism and traveling abroad, increased border taxes for goods purchased outside China, and narrowing price gaps between Mainland China and other regions.“We expect a further acceleration of this trend in 2017, as store networks have been rationalized, implying better locations and more efficient store formats,” HSBC said.China wasn’t Burberry’s only top performer in the second half. The U.K. saw an “exceptional” uptick in sales, with rises of 40 percent in the third and fourth quarters. As a result, the entire European region notched double-digit growth in the period.Those were a few bright spots in what’s been a challenging 12 months as Burberry looked to restructure its business in markets such as the U.S. and Korea and to downsize its beauty distribution. Last year, the group reduced its beauty points of sale in the U.K. — its largest market — to 35 from 3,000 — and there are more cuts to come in other key markets on the continent.In the six months ended March 31, retail revenue at Burberry surged 19 percent to 1.27 billion pounds, or $1.57 billion. Stripping out the impact of the weak pound, retail revenue rose 3 percent.Total revenue, which includes the wholesale and licensing businesses, was up 14 percent on a reported basis to 1.61 billion pounds, or $2 billion, but fell 1 percent on an underlying basis.The growth wasn’t enough to lift Burberry's share price, which declined throughout the day and closed down 7.9 percent at 15.66 pounds, or $19.81. Earlier in the day, analysts had expressed their dismay after Burberry reported that comparable-sales growth fell to 2 percent in the fourth quarter from 3 percent in the third quarter.“It’s been a year of change, of significant revenue headwinds, and U.S. and Japan repositioning,” said Julie Brown, the company’s new chief operating officer and chief financial officer.It was also a year that saw Burberry shift to see-now-buy-now coed shows, draft a wide-ranging austerity plan, hand over its fledgling in-house beauty business to Coty and name a new chief executive officer in Marco Gobbetti, who will take over later this year.During a call, Brown confirmed a report in the Daily Mail that beauty-related layoffs could be in the pipeline, but said the number of jobs affected would be closer to 100 rather than the 200 reported by the paper. “Some roles will remain in Burberry, some will transition to Coty,” she said.The beauty business contributed to the decline in wholesale revenue, which fell 1 percent at reported rates to 327 million pounds, or $406 million, and was down 13 percent underlying, in line with guidance.The Americas region saw a midsingle-digit decline in sales, due partly to the strength of the U.S. dollar, which saw customers opting to buy outside America. In the second half, Brown said the U.K. saw a 90 percent surge in U.S. customers due to the weaker pound and stronger dollar.Burberry has also been shunning promotional activity at U.S. department stores and curtailing its sales and markdown periods in that market. Korea, the company’s third-largest market in Asia, also declined, impacted by the macro environment and the brand’s efforts to reduce promotional activity.Looking to the current 2017-18 fiscal year, Burberry said the focus would be on consolidating its retail footprint. Unusually, the brand said there would be zero contribution from net new space in the full year as the company focuses on productivity from its current store footprint.Burberry, like so many other brands that expanded rapidly worldwide, is in the position of having to make those stores generate sales. Brown said part of the answer lies in digital, “which is now influencing around 70 percent of the buying decisions at Burberry.”Brown said, based on the company’s data, customers visit Burberry digital channels an average of eight times before they make a purchase. Burberry is pushing on other fronts: The February show was the first runway show to be live-streamed on Instagram, and the result was a 25 percent increase in sales, compared with the September outing.“The runway collection is a small part of the business, but the show went well," said Brown, adding that apparel, including dresses, gabardine and tropical weight gabardine pieces, were among the bestsellers.Brown added that Makers House, the pop-up exhibition venue where Burberry has been holding its shows, saw 50 percent more visitors than in September.She said the future would be a mix of digital-savvy and personal service. The Burberry private clients team has been increased by 50 percent while training has been enhanced, with the result that private clients now buy double that of average clients.The company will release its full year-end results on May 18, and ahead of that statement it said the impact of year-over-year exchange rate movements on reported adjusted retail-wholesale profit is set to be about 130 million pounds, or $166.7 million.In the current year, however, Burberry is expecting a 10 million pound, or $12.7 million, drag on the reported, adjusted figure, due partly to hedging rates that are less favorable. The company said most of the adverse effects are expected to be offset by an improvement in underlying performance.

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