LONDON — Burberry, bruised by ongoing currency swings, plans to tighten its ship further as it continues to navigate choppy waters in the new fiscal year.
On Wednesday, the company warned that full-year profits for 2015-16 wouldn’t be as rosy as originally anticipated due to ongoing fluctuations between the pound and U.S. dollar-pegged currencies.
The company said if exchange rates remain at current levels, reported retail/wholesale profit will only be about 10 million pounds, or $15.6 million, higher than last year.
That’s 40 million pounds, or $62.3 million, less than the guidance Burberry offered at its second-half trading update in April, reflecting the dramatic exchange rate movements of late.
Shares in Burberry closed down 5 percent to 17.17 pounds, or $26.74, on Wednesday.
For international fashion and luxury makers like Burberry, currency has been a never-ending drama. Zigzagging exchange rates have been playing havoc with public companies’ quarterly reporting and with their pricing, as tourists will happily flock to markets where they assume the goods will be cheaper.
Already in the 2014-15 fiscal year, adverse exchange rate movements took a toll on Burberry’s bottom line, with year-end profits rising 4.3 percent to 336.3 million pounds, or $538 million. Adjusted profit before tax was 456 million pounds, or $729.6 million, representing a 7 percent increase on an underlying basis, and a 1 percent decrease on a reported one, due to the adverse exchange rate impact.
As reported, revenue in the 12 months to March 31 was 2.52 billion pounds, or $4.03 billion, 11 percent higher than last year on an underlying basis, and 8 percent on a reported one.
Dollar figures have been converted at average exchange rates from the periods to which they refer.
During a conference call Wednesday, Carol Fairweather, Burberry’s chief financial officer, said the potential exchange rate impact on 2015-16 profits was in no way a warning about the company’s performance.
“This is not a trading issue, and there is no change to our underlying guidance. What we’re talking about is the impact of translation of profits from dollar-related currencies into pounds. You cannot hedge against translation. We have a large cost base in the U.K., and many of our sales are done in dollars,” she said.
Fairweather also said Burberry plans to stick to its pricing architecture policy, tweaking prices in markets only when exchange rates start to have an impact. She said that in recent weeks, the company has had to raise prices on selected items in Europe, and lower them in China and Hong Kong.
“These price adjustments are business as usual, a constant part of the way we do business internationally. We are very much aligned with what our immediate peers are doing,” she said, declining to offer any specific numbers.
In a note published Wednesday, Barclays in London said in the month of April, Burberry cut trenchcoat prices by about 13 percent in China and by 8 percent in Hong Kong. The company increased them by 6 percent in Europe. “The group is a price leader in outerwear and scarves where these changes have taken place, but not in handbags, as it prices relative to its peers,” the bank said.
Earlier in the day, Burberry’s chief creative and chief executive officer Christopher Bailey said the company had performed “against a challenging external backdrop,” in 2014-15 and focused on core products such as heritage trenchcoats, cashmere scarves and ponchos, as well as extending its integration of online and off-line retail channels.
Indeed, Burberry said sales of outerwear and soft accessories grew by nearly 20 percent in the 12 months – and were a major driver behind revenue growth. Last year, Burberry simplified its assortment of trenches with three standard fits, three colors and three lengths. In scarves, the company introduced monogramming online, which also attracted a strong customer response, the company said.
Bailey told investors and analysts during a presentation Wednesday that the company set out to “radically simplify” the trench-buying process both on and off-line with fewer choices. He said the scarf would come into especially sharp focus in the current fiscal year, while Fairweather added that the company has more in store for the poncho, too.
Bailey told investors that retail sales last year were a “highlight, despite traffic declines globally,” and that the company would continue to shine the spotlight on heritage and made in Britain products.
The ceo also said the company would continue to rationalize its product assortment and had already seen a “double-digit reduction in product options” over the past year. He said the reduction in product was a means of becoming more efficient as a company and also driving overall sales.
The company is tightening up its inventory: Following the introduction of a virtual warehouse of inventory in China integrating online and offline, the company will apply the same practice to the U.K. and the U.S. later this year.
Men’s wear revenue was up an underlying 10 percent, while beauty sales advanced 26 percent, with fragrance the biggest booster. Burberry said fragrance, which accounted for 95 percent of beauty revenue in the period, was underpinned by the launch of the My Burberry and the product extensions around the Brit Rhythm scent.
Capital expenditure is set to be 180 million pounds, or $280.3 million, in the current year, with two-thirds dedicated to retail, biased towards Asia-Pacific. Flagships are planned for Seoul, New York and Tokyo while Thomas’, a gifting shop and café, will open in Burberry’s Regent Street flagship in London.
Last year, Burberry opened 16 mainline stores, and closed 17, bringing the total to 214 globally at yearend. More than half the openings were in flagship markets, including Los Angeles and Tokyo. Closures were mainly in China, where Burberry is constantly looking to “elevate” its real estate portfolio.