By Samantha Conti
with contributions from Fiona Ma
 on May 16, 2019
Details at Burberry RTW Fall 2019

LONDON — Burberry’s transition to thrusting luxury player was always going to be painful, but that’s fine with chief executive officer Marco Gobbetti, who’s delivering to plan, and focusing on the bigger picture.

Revenue in fiscal 2019 was 2.72 billion pounds, broadly flat against last year, while adjusted operating profit margin remained relatively steady at 16.1 percent, in line with the broader strategy Gobbetti laid out 18 months ago, and with analysts’ expectations.

Stripping out the impact of the beauty wholesale business, now a license with Coty Inc., revenue was up 2 percent at reported and constant exchange rates.

In his five-year plan, Gobbetti set out two years of flat revenue growth and adjusted operating margin with the aim of building Burberry into a brand that could outstrip the 4 to 5 percent growth in the luxury sector projected by Bain for the medium term.

On Thursday during a presentation to analysts, Gobbetti was sanguine despite the lackluster numbers and sinking share price: Burberry closed down 5.9 percent to 18.08 pounds. He said the company is right on track with a cost-savings program ahead of schedule and strides being made on multiple fronts, from design and pricing to wholesale repositioning, supply chain, speed to market and store refurbishments.

He argued that the Riccardo Tisci takeover has only just begun, with just 10 to 15 percent of the designer’s first collection impacting the 2019 results. Tisci made his catwalk debut last September and the merchandise started landing on the shop floor in February, shortly before fiscal 2019 ended on March 31.

Burberry, Gobbetti said on the sidelines of the presentation at Horseferry House, is right where it should be.

“I was telling my colleagues that if they’d asked me to sign up for this a year ago, I would have gladly signed up to be where we are today, for the amount of work and the quality of work we’ve done. There’s been no actualization yet, it hasn’t translated yet into numbers because it cannot. The product is not in the stores, but I think what we have created over this year is very good,” he said.

He added that the company was “energized” by the early results of the transformation plan as he confirmed Burberry’s outlook for fiscal 2020.

The company was quick to point out that by the end of fiscal 2020, next March, some 75 percent of Tisci’s designs will be selling in-store. In addition, more stores — about 80 of them — will have been refurbished with the designer’s spare, arty aesthetic. Some 38 smaller stores, deemed non-strategic, will be closed by the end of the current fiscal year.

“The customer experience is incredible when Riccardo’s product is in the refreshed stores,” said Julie Brown, chief operating and financial officer, during a Q&A with analysts.

Already, Burberry said it has seen “strong” double-digit growth year-on-year from Tisci’s debut collection, and similar increases in accessories orders by Burberry’s smaller — and more curated — group of wholesale partners. Burberry said the Vivienne Westwood collaboration, which bowed before Christmas, drew a “strong response.”

Bags, Gobbetti said, are a work in progress as Burberry seeks to broaden and upgrade the leather goods offer in particular.

During fiscal 2019, Burberry purchased its longstanding Italian manufacturer CF&P, which specializes in the development and manufacture of luxury leather handbags and accessories. The employees, including the team of craftsmen who had worked closely with Burberry for more than a decade, transferred to the company, which is based in Scandicci, a few miles south of Florence.

The company said 2019 performance in the category was dragged down by some of the older collections, which will be phased out as Tisci’s puts an ever-greater stamp on Burberry.

The chief creative officer has gone big and broad with his collections, aiming — like so many luxury labels nowadays — to cater to mother and daughter, father and son. To wit, the new Burberry campaign for the Monogram collection shows Gigi Hadid morphing into four different characters to reflect the varied offer.

Tisci’s collections take in street and fine tailoring, pussy-bow silk, puffers and punk jewelry. On Gobbetti’s watch Burberry has also fleshed out its ready-to-wear categories and aims to sell a head-to-toe look to customers.

Asked about bestsellers so far, Brown called out men’s wear and men’s tops, women’s silk shirts, skirts, trousers and accessories, and the TB monogram pieces.

In the year to March 31, profit after tax climbed 15 percent 339 million pounds, the rise due to adjusting operating items. Operating profit in the period rose 7 percent 437 million pounds, while adjusted operating profit was down 6 percent.

All regions notched low-single-digit percentage growth, with mainland China getting a boost in the second half from Chinese spend, which shifted away from other Asian tourist locations, such as Japan and Hong Kong. China, including the traveling Chinese, is Burberry’s single largest market.

The U.K. benefited from tourist spending in the second half while Continental Europe grew by a low-single digit. Burberry said tourist flows remained “subdued” and local footfall was soft in the U.S., which also grew by a low-single digit.

Asked about the impact of the escalating U.S.-China trade war, Gobbetti said it was not material to Burberry, at least for the moment. He stressed that from a sourcing perspective, there would be no impact as Burberry makes the bulk of its products in the U.K. and Europe.

“I don’t think anyone is completely immune, but at the same time I think it’s not material for us. I think that we all hope there will be a positive sentiment among Chinese consumers in terms of feeling confident about spending. So the only thing that would worry us is if, somehow, that sentiment is lost. There are big negotiations going on, and I do think there are going to be up and downs, but both parties have an interest in finding a solution,” he added.

Burberry has been focusing on more than design and building up its product categories. The company said it delivered cumulative cost savings of 105 million pounds, ahead of plan, in fiscal 2019 and the money was largely reinvested in consumer-facing activities, such as pop up stores and events. Some 30 pop-ups are planned worldwide over the next few months.

It has also expanded the scope of its restructuring program, and increased its cumulative cost-savings guidance target from to 135 million pounds from 120 million pounds by the end of 2022.

Team Burberry is also tightening up the supply chain in a bid to ensure that stores can access product more quickly and get those TB logo bags, hoodies and trenches onto the shop floor, pronto.

The brand’s distribution centers are now able to hold more inventory of replenishment items, which means that stores can optimize the space formerly used for storage. Gobbetti said Burberry continues to cut down on the time of delivery to market.

The company also touted its sustainability efforts, which include ending the practice of destroying unsalable products, stopping the use of real fur and pledging to eliminate unnecessary plastics from our supply chain by 2025.

During the Copenhagen Fashion Summit earlier this week, the company also said it has been working with sustainable materials and providing repair services as part of a “disruptive” approach to going green.

Burberry has also partnered with Future Fashion Factory, an industry-led research program for textile technologies, to use digitization to create a more agile manufacturing process that creates less waste.

It has also been working with Refibra, a new fiber made from cotton scraps from the Burberry mills, in partnership with Lenzing. The material will be used to make Burberry dust bags.

The brand is swapping its plastic packaging for a material made from recycled coffee cups, while 60 percent of its transit plastic packaging is now compostable.

During the results presentation Thursday, the company confirmed its full-year 2020 outlook for broadly stable revenue and adjusted operating margin at constant exchange rates, all part of Gobbetti’s five-year plan.

Burberry also announced a share buyback of 150 million pounds, an uptick in its dividend to 42.5 pence and the retirement of two longtime non-executive directors, Ian Carter and Stephanie George at the annual general meeting on July 17.