LONDON — The heat is on at Burberry, which reported a 3 percent uptick in first-quarter retail sales to 479 million pounds, broadly in line with analysts’ projections, and which is fine-tuning its commercial model ahead of Riccardo Tisci’s runway debut in September.
Drivers behind the growth were Chinese tourists, who have shifted their attention away from Europe and to Asia-Pacific, and the U.S., which has begun to embrace Burberry once again.
Digital sales also fueled the uptick in the quarter, with mobile now the largest digital channel for Burberry. Local and returning “top customers,” the new Farfetch collaboration, which exposes Burberry to a larger audience, and a new strategy of selling a total look rather than pieces to customers were other contributors to underlying growth.
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At reported exchange rates, retail sales were flat while comparable store sales grew 3 percent in the 13 weeks to June 30. Burberry shares closed down 3.8 percent, falling to 20.22 pounds on the London Stock Exchange.
Chief executive officer Marco Gobbetti, who has been spearheading changes at the company, said Burberry was pleased with its progress in the period, and the team has embraced Tisci’s creative vision and is working well together ahead of the show.
“While we know it will take time to achieve our ambitions, our progress to date — and the energy in and around the company — give me confidence for the future,” said Gobbetti, who had warned back in November that his five-year plan would entail two years of flat revenue growth and adjusted operating margin.
Burberry, which is gearing up for Tisci’s first runway show for the brand on Sept. 17 during London Fashion Week, has also confirmed a new way of working — and addressing the customer.
As first reported exclusively by WWD on Tuesday, Tisci is planning a limited-edition capsule collection as part of his runway debut.
The collection will start delivering from September, and nods to a new rhythm of regular deliveries from Burberry that are meant to engage the consumer all year round.
The brand has moved on from its see-now-buy-now strategy and is more interested in drip-feeding new designs onto the shop floor — and digital screen. Earlier this month, Tisci revealed a collaboration with one of his design idols: Vivienne Westwood, who will “reimagine” signature Burberry styles that will launch in-store in December.
“Riccardo is really excited about Westwood, and the collaboration is driving heat, customer engagement and excitement around the brand,” said Julie Brown, Burberry’s chief operating officer and chief financial officer, during a call following Wednesday’s trading update.
She called the new, frequent delivery model “industry-driven,” and said the deliveries are meant to spark “interest, excitement and brand heat.” There will also be a big direct-to-consumer element.
The limited-edition capsule that Tisci is doing as part of his debut will be available for members of the public to buy in a series of instant drops from September, and the company also clarified that its ramped-up consumer engagement won’t end with product.
Burberry is planning “communications and experiences to surprise and delight” customers and wants to sustain a “regular conversation” with them throughout the year. Burberry said the new model is an evolution from see-now-buy-now. Observers had long questioned whether that strategy was a success an even the company admitted it meant that merchandise sat in-store for around four months until the usual seasonal product became available.
“This evolved model is more dynamic with new product and content more often,” the company said.
Burberry’s first-quarter gains were in line with most estimates, although analysts said the moment of truth will come after Tisci’s first show.
No pressure there.
“All eyes are on the feedback media will provide in September to Tisci’s first collection. Until then, it’s just going to be a waiting game,” said Luca Solca, sector head, luxury goods at Exane BNP Paribas.
He has said Gobbetti’s senior management team has “a sterling reputation and a proven track record of teamwork, at least in the key positions. Although the risk of overexcitement is still there, the downside of the transition phase seems defused, and management has so far been canny in guiding on the transition. How brand elevation will be carried out is key.”
On Wednesday, UBS’ Helen Brand, equity research analyst, said “the focus remains on the new creative director’s first runway show on Sept. 17.”
Burberry’s annual meeting takes place this week, and then it won’t report again until Nov. 8, when it reveals its numbers — and initial reactions to Tisci’s designs — for the six months to Sept. 29.
In the first quarter, it was the Chinese tourist who was hungry for Burberry — not in Europe, but in Asia-Pacific, which grew by a mid-single-digit percentage, Burberry said.
Mainland China grew and Hong Kong, South Korea and Japan all benefited from Chinese spending shifting more to Asian tourist destinations in the region.
Asked whether Burberry plans to adjust prices in China, following Louis Vuitton, which reduced prices in response to the Chinese government’s new, lower import duties, Brown said the jury was still out.
“We are still assessing it at this point. We’re supportive of the Chinese government’s decision to lower duties and we’ll update on our plans in due course,” she said.
EMEIA, or Europe, the Middle East, India and Africa region, declined by a low-single-digit percentage, with softer tourist demand impacting both the U.K. and Continental Europe. The Middle East remained weak due to macro factors, Burberry said.
The U.K. in particular was hard hit, on a comparative basis, as sales a year ago had been buoyed by the post-Brexit referendum’s weak pound.
Brown added that the rise in Asia-Pacific demand and the decline in Europe were most definitely linked. Chinese clients, who make up a large part of Burberry’s business, “will move with currency,” she said.
The Americas grew by a high-single-digit percentage due to improved trends that emerged in the fourth quarter of last year, with footfall positive, Burberry said.
Gobbetti and his team have been making major efforts to reposition the brand with U.S. department stores, and Brown said the company was “very encouraged by the performance in the U.S. market, with higher traffic coming through.”
She added that retail is also showing signs of good growth.
With regard to product, Burberry said the newly launched handbags, such as the Belt and D-ring, performed well, while rainwear grew, with strength from Car Coats and seasonal tropical gabardine.
The company said exchange rate changes won’t be as bad as expected for the full fiscal year, and the expected impact of rates on reported adjusted operating profit is around 25 million pounds adverse, an improvement of about 15 million pounds compared to the previous guidance of around 40 million pounds adverse.
The change is principally due to the pound depreciating against the U.S. and Hong Kong dollars. Burberry added that for the full year it expects a “marginal” currency benefit to revenue, with a headwind in the first half more than offset by a benefit in the second.