Burberry back in growth after tough H1, China and bags are key
Results statements rarely contain too much good news these days, but on Thursday, Burberry’s results release was upbeat with the group showing signs of a recovery. It said its October sales were back in growth, which marks a strong improvement on a first half report that was mainly about negative figures.
So what happened in the first half? In the six months to September 26, it saw revenue falling 31% year-on-year to £878 million with retail comp sales down 25%. Adjusted operating profit fell 75% to £51 million and the adjusted operating profit margin dropped to 5.8% from 15.9%. Reported operating profit was £88 million, down 56%, and adjusted pre-tax profit fell 82% to £36 million.
The company said that the momentum it had built was disrupted by Covid-19 during the period, but it was quick to adapt and made “further progress against our strategy”. The virus continues to hurt sales in some regions, but the firm is “encouraged by our overall recovery and the strong response to our brand and product, particularly among new and younger customers”.
Its recovery trajectory is clear as the first quarter saw comparable store sales falling 45%, while Q2 was down 6%, followed by that return to growth in October. It didn’t put a figure on current trading, but it's likely that it's being hurt by national lockdowns in Europe at present.
In Europe, around half of its sales are usually to tourists and current lockdowns mean around 10% of its stores are closed. Lockdowns during H2, meant EMEIA, Japan and South Asia Pacific struggled due to “the significant reduction in tourism” and it’s probably seeing a mini repeat of this at present.
CHINA AND KOREA STRENGTH
Looking back at the good news, even with the ongoing sales drop in Q2, it saw “strong double-digit growth in Mainland China, Korea and the US”.
Burberry also said it enjoyed a “strong response to product with [a] marked increase in the weight of full-price channels”. And there was “growth in leather goods, outperforming the average retail comp”. Digital also grew in high-double-digits.
That news about full-price product is key. With the brand “resonating and attracting new and younger consumers”, the company has decided to reduce markdowns “and this will be a revenue headwind in H2 with the main impact in Q3, but will serve the long-term interest of the brand,” it said.
And long term is really where the executive team is focused with the firm continuing it’s ongoing growth strategy that had looked to be in such a good place pre-pandemic.
In fact, in January, ahead of the outbreak, it delivered double-digit comparable store sales growth. But with 60% of stores closed as the first half began, it was clear it wouldn’t repeat that.
It has had to adapt fast to current circumstances and said it has “reoriented” the business “to capture opportunities in rebounding markets, localising plans and shifting resources where needed”.
This resulted in “higher exit rates in September compared with June and strong performance in Americas and Asia”.
In fact, in the Americas, comparable store sales were up 21% in Q2, with the US higher than the regional average, “driven by momentum with new and younger customers and full-price channels outperforming”.
In Asia, comparable store sales were up 10%, with the strong growth in Mainland China and Korea “more than offsetting the performance of other Asian markets including Hong Kong SAR and Australia”. In Mainland China, it has seen “a positive reaction to localised campaigns and strong response to our core product categories - leather goods, in particular Pocket, and outerwear, which experienced high-double-digit growth in Q2”. Overall, Mainland China has “enjoyed good double-digit sales growth in full-price channels since May”.
DIGITAL AND PRODUCT
The company has ramped up its digital activities with initiative such as its deeper dive into gaming, plus digital pop-ups “and exceptional-visibility activations on third party platforms”. In September, it participated in Tmall's SuperBrand Day, driving the highest single-day sales to date on Tmall.
It also amplified its appointments strategy, launching new, locally relevant formats like at-home appointments, virtual appointments, and styling events “that deliver a luxury shopping experience and ensure our clients feel safe”.
But it clearly wants to make its offline and online ops work as closely together as possible. This seems to be paying off. The opening of its first social retail store in Shenzhen Bay in an exclusive partnership with Tencent during July is “outperforming our expectations and attracting new and younger consumers to the brand”. It has also introduced new online-to-offline customer journeys, “linking consumers browsing on .com directly to sales associates in stores”.
As mentioned, certain products have done particularly well and leather goods have led the charge. “The bags family architecture we established — Lola, TB, Pocket and Title — now account for the majority of full-price sales in bags, supported by a series of over 40 leather goods activations and pop-ups launched in the first half,” it said. And it added that the new Olympia bag “has seen a strong initial momentum”.
All product categories were impacted by the store closures in Q1 but saw improvement in Q2. Leather goods increased in low-single-digits in Q2 and menswear performed well “due to good traction in jersey wear and trousers”.
Womenswear also saw a good performance in dresses and knitwear. But outerwear “was impacted by lockdown and working from home”. Yet its Mainland China Q2 growth followed a successful localised Trench campaign featuring Zhou Dongyu. This generated nearly 100 million impressions and around 4 million interactions across social media channels.
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