LONDON — After a tough start to the year, Burberry appears to be back in growth mode thanks to vigorous demand in mainland China and the weak pound, which has been whetting the appetites of customers shopping in the U.K.
The shrinking pound bolstered Burberry’s third-quarter retail performance by 22 percent to 735 million pounds, or $911.4 million, with underlying sales up 4 percent in the three months to Dec. 31, fueled mostly by like-for-like growth rather than new stores.
The numbers outstripped analysts’ expectations and marked another peak for the brand, which notched a 3 percent decline in sales in the first quarter and returned to modest growth in the second three-month period.
Burberry shares closed up 3.6 percent at 16.50 pounds, or $20.11.
The company has been slashing costs and product lines as it looks to slim down and gird itself for future growth in a market where shoppers, used to purchasing online, are increasingly bored by traditional brick-and-mortar stores as they seek more exciting experiences.
Fellow luxury giants, including Giorgio Armani and Compagnie Financière Richemont, parent of brands such as Cartier and IWC, have been struggling with shrinking sales growth due to changing tourist flows and consumer habits.
Burberry has been working hard to turn the tide: Sales assistants are being trained on how to build better relationships with customers, while local customers — rather than tourists — are getting more attention from the brand.
Burberry noted an “acceleration” in mainland China, which delivered high-single-digit percentage comparable sales growth. Stripping out the impact of the store closures and upgrades in Beijing, the country delivered 15 percent growth year-on-year.
Asked what drove the growth, Burberry’s head of investor relations, Charlotte Cowley, said the improved Chinese web site launched in November right around the time a new campaign featuring Kris Wu, the Chinese-born Canadian actor, singer and model, was revealed.
Even Hong Kong improved, albeit to a low-single-digit percentage comparable sales decline, with positive conversion offsetting the majority of the footfall drop. Asia-Pacific returned to growth with a low-single-digit percentage uptick.
Cowley handled the call Wednesday, in place of chief financial officer Carol Fairweather, who is leaving the company. Fairweather has been succeeded by Julie Brown, who also has the title of chief operating officer. She began work on Wednesday.
Pre-Christmas trading was particularly robust in the U.K., where comparable sales growth was 40 percent thanks to the post-referendum pound, with both tourists and locals snapping up bargains despite a price hike in November. The company said it saw “record engagement” from its festive film, a fictional account of Thomas Burberry’s life, featuring Sienna Miller.
The pound has fallen an average 14 percent against the dollar, and 11 percent against the yuan since the U.K.’s vote to leave the European Union.
Continental Europe remained weak, although France saw an improvement compared to Q2, Burberry said. In the U.S., there was a low single digit decline in sales with the domestic and tourist demand uneven. Cowley called the U.S. a “promotional environment” with accelerated sales periods and Burberry chose not to take part in any of the pre-season sales.
Fashion once again outperformed perennial styles and led growth across all categories. Accessories, enhanced by monogramming services, also did well with sales led by strength in bags, in particular the Banner, Rucksack and Buckle tote.
Burberry said the September collection delivered “strong results” following the company’s first see-now-buy-now efforts and first fully co-ed runway show, with the military jacket and the Bridle bag among the bestsellers.
The company said digital outperformed with growth in all regions and was led by mobile, with conversion supported by the launch of new payment methods. Burberry said its redesigned website and the enhanced local web site in China delivered strong growth in the three-month period.
Analysts gave the quarterly performance a thumbs-up, with Charlotte Pearce at Verdict Retail noting that the company must stay focused going forward. She said Marco Gobbetti, who will join the group later this month and take up his chief executive officer role in July, “must focus his efforts on keeping the business lean and flexible by streamlining and being innovative with offsetting higher costs.”
Looking ahead, Julian Easthope and Julie Zhuang of Barclays in London said they remain optimistic on trading, with “much easier” fourth quarter comparatives to come.
“Recent initiatives such as the festive movie and the ongoing collaboration with ambassador Kris Wu have resonated well among Chinese consumers. Longer term, Burberry has credible self-help opportunities with the new management team arriving this month, and its strategy on bags, digital and retail efficiency is off to a good start.”
HSBC was positive, too, and said the uptick in Burberry sales bode well for the luxury sector overall. The bank said the Burberry figures “confirm that with very few exceptions (e.g. Tiffany), the current environment is seeing a shift in momentum for the sector. While Burberry is underperforming some of its larger peers such as Kering and LVMH in the soft luxury space, the pick-up in like-for-like growth is encouraging.”