LONDON — The Tisci touch lifted Burberry’s retail revenue in the first quarter, and that growth is set to accelerate as the designer’s collections take up increasing amounts of space on the brand’s shop floors and digital screens.
The 4 percent uptick to 498 million pounds outstripped analysts’ expectations and drove the share price up 14 percent to close at 22.77 pounds on Tuesday.
At constant exchange, revenue rose 2 percent while comparable-store sales climbed 4 percent in the 13 weeks ended June 29, fueled by chief creative officer Riccardo Tisci’s new designs, including items with the TB monogram and the monthly B Series drops.
The designer showed his first collection, for spring 2019, in September, but it only began filtering onto the shop floor in late February. Now it appears the Tisci era has begun in earnest, with the proportion of his designs increasing to around 50 percent by the end of June, compared with 10 to 15 percent in March.
By September, about 60 to 65 percent of Burberry’s merchandise will have sprung from Tisci’s studio, and by the end of the fiscal year in March 2020, that figure will have risen to 75 percent.
The company said Tisci’s collections, including men’s and women’s apparel, grew by a double-digit percentage in the first quarter compared to the prior year.
“This was the first quarter where the proportion of new product in our stores was meaningful, and the response from consumers was very promising,” Burberry said in a trading update Tuesday. “New collections delivered strong double-digit percentage growth, with all regions ahead of prior-year equivalent collections.”
The response to Tisci’s designs was also strong at wholesale, where Burberry said many of its luxury doors saw “significantly higher” sell-throughs compared to previous collections. Buyers are now seeing what Tisci can do, having cast their eyes over his spring 2019, pre-fall and fall 2019 collections.
Marco Gobbetti, Burberry’s chief executive officer, said the quarter was a good one. “We increased the availability of products designed by Riccardo, while continuing to shift consumer perceptions of our brand and align our network to our new creative vision,” he said.
The first-quarter increase comes in the wake of lackluster numbers for fiscal 2018-19. Just two months ago, Burberry reported annual revenue of 2.72 billion pounds, broadly flat against the prior year, while adjusted operating profit margin remained relatively steady at 16.1 percent.
The figures were in line with the broader strategy that Gobbetti laid out 20 months ago, and aligned with analysts’ expectations.
Asked about some of the bestsellers in the first three months, Julie Brown, Burberry’s chief operating and financial officer, said pairs of sculptural, black-leather sleeves with elastic gatherings and a medieval feel, part of the B Series, and priced at 170 pounds, sold out within 20 minutes, while pieces with the TB monogram have been a hit among Chinese Millennials in particular.
In 2021, once his designs have completely taken over the shop floor, Tisci plans to take a fresh look at Burberry’s classics, such as the trench, in a bid to create new “icons of the future,” according to Brown.
Other factors lifted sales in the first quarter, too. Brown said tweaks and refurbishments made to the stores, Burberry events and a new retail excellence program, also fueled sales.
The brand has so far revamped 23 stores and plans to boost that number to 80 by the end of fiscal 2020 in March.
Burberry still has a long road ahead, and despite the enthusiasm about the first-quarter numbers, Gobbetti confirmed the outlook for fiscal 2020 as showing “broadly stable” revenue growth and operating margin at constant exchange, including cumulative cost savings of 120 million pounds.
While comparable-store sales growth is set to accelerate as Tisci-designed product builds, that growth will be partially offset in the second half by reduced markdown inventory compared to the prior year.
The Burberry accessories offer also remains a work in progress: Sales declined in the first three months, and Burberry argued that the benefit from new styles was “more than offset” by the softer performance of items from previous collections.
Brown said the handbag offer was “traveling at two speeds,” with old models being phased out, and new ones that will take a few years to gain traction as Burberry moves steadily upmarket into the luxury space. “We’re pleased with where we are, and the picture will improve,” she said.
In the first three months, Asia Pacific grew by a high-single-digit percentage, driven by Mainland China, which was up in the midteens. Hong Kong showed “a slight decline” in sales due to the violent protests against Chinese extradition legislation.
The Chinese customer, at home and abroad, accounts for 40 percent of Burberry sales, and Brown said the company was “investing heavily” in China and Japan. She described Asia overall as a “key growth opportunity.”
The EMEIA region rose by a low-single-digit percentage, with the U.K. growing by a high-single-digit percentage due to increased tourist spend.
The Americas region was flat, with the U.S. growing by a low-single-digit percentage. Canada was negatively impacted by a later markdown period.
Overall retail space declined 2 percent, including the planned, non-strategic store rationalization program.
Rogerio Fujimori, analyst at RBC Europe, said the “Tisci effect is now visible, and fueling the bull case on the stock. As a result, we expect retail like-for-like growth to further accelerate in coming quarters, except for (in the third quarter) when reduced markdown inventory should hold back like-for-like growth below Q1 levels.”
Luca Solca of Bernstein called Burberry’s first-quarter revenue figure “encouraging,” adding that with the new styles now representing about 50 percent of the assortment, “one would expect further retail growth momentum — albeit partly compensated by wholesale downsizing in the U.S.”