Burberry Pre-Spring 2019

LONDON — Burberry shares were up 4 percent to 18.75 pounds in afternoon trading on Wednesday after the company reported a 2 percent uptick in revenue, excluding beauty sales, in fiscal 2017-18.

Burberry held steady in a transitional year that saw the arrival of a new team at the top, a fresh strategy, and the departure of company veteran Christopher Bailey, who has been replaced by Riccardo Tisci as chief creative officer.

Total revenue in the 12 months to March 31 dipped 1.2 percent to 2.73 billion pounds. Excluding the wholesale revenue from beauty, sales were up 2 percent, with growth led by retail gains at existing stores.

Operating profit rose 4 percent to 410 million pounds, while adjusted operating profit rose 2 percent to 467 million pounds. Burberry said the latter benefited from positive retail performance, 44 million pounds in incremental cost savings and improved beauty profitability due to reduced marketing and inventory charges.

Burberry inked a license last year with Coty Inc. to accelerate the growth and development of its beauty business, which had formerly been in-house. The exclusive agreement took effect last October.

Burberry’s chief executive officer Marco Gobbetti said the company was pleased with its performance since it began to execute the new strategy he announced last November.

“While the task of transforming Burberry is still before us, the first steps we implemented to re-energize our brand are showing promising early signs. With Riccardo Tisci now on board and a strong leadership team in place, we are excited about the year ahead and remain fully focused on our strategy to deliver long-term sustainable value,” said Gobbetti.

The executive’s aim is to reverse the trend of slower growth compared with Burberry’s luxury peers, and over the next five years, to achieve “high-single-digit” revenue growth — higher than the 4 to 5 percent that Bain has projected for the sector in the medium-term — and “meaningful” operating margin expansion.

His five-year plan entails two years of flat revenue growth and adjusted operating margin. Over the next two years, Gobbetti said he’ll be consolidating the brand’s position in the luxury space by aligning prices with Burberry’s luxury peers, upping the levels of in-store service, rethinking wholesale and outlet distribution, and putting a better focus on digital and audience engagement.

On Wednesday, Burberry said that in fiscal 2017-2018, the company started on its plan to revamp its distribution network, including retail store closures, and made cumulative cost savings of 64 million pounds, ahead of plan.

As reported, it has also bought back its leather goods manufacturer in Tuscany and inked a major deal with Farfetch.com that will see its entire inventory available on the e-commerce platform.

Burberry also said it was on track to deliver cumulative cost savings of 100 million pounds and announced a share buyback of 150 million pounds.

In a note following Wednesday morning’s results, Luca Solca of Exane BNP Paribas said the results were in line with expectations, while adjusted operating profit was slightly ahead.

“Burberry is at the beginning of a new chapter in its history. We like the progress the company has made in building a credible senior management team. We believe, though, that a relaunch will take time, due in part to the brand’s low starting point, in terms of both distribution and desirability,” Solca said. 

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