Burberry blames difficult luxury environment for sales decline

In the second half, total sales at Burberry decreased by 1 percent. In retail, comparable sales for the period were down 2 percent, or up 1 percent excluding Hong Kong and Macau. The company says that adjusted profit before tax for FY 2016 is expected to be broadly in line with analysts’ expectations.

Commenting on the trading, Christopher Bailey, Chief Creative and Executive Officer, said, “In an external environment that remains challenging for luxury, we continue to focus on reducing discretionary costs and are making good progress with developing enhanced future productivity and efficiency plans. Meanwhile, brand momentum is strong, digital continued to outperform in the half and innovation in new products is resonating well with our customers.”

Burberry H2 performance

Underlying retail sales in the second half were unchanged year-on-year at 1,064 million pounds (1,502.8 million dollars). Within this, comparable sales declined by 2 percent. Asia Pacific saw a mid-single-digit percentage decline in comparable sales in the period, consistent across the third and fourth quarters. Impacted by continuing weak footfall, comparable sales in Hong Kong declined by over 20 percent for the third successive quarter. Excluding Hong Kong and Macau, comparable sales in the second half increased by a mid-single-digit percentage. Mainland China and Korea continued to show positive growth, as did Japan, where total retail revenue in the year more than doubled.

Comparable sales in EMEIA were broadly unchanged year-on-year. Continental Europe slowed in the fourth quarter as sales from the travelling luxury customer, particularly the Chinese, declined year-on-year, offset in part by growth from domestic customers. The UK and Middle East remained difficult throughout the half. The Americas saw a marginal decline in comparable sales in the second half, slowing in the fourth quarter. Demand from US domestic customers was uneven throughout the half, while spend by the travelling luxury customer remained down by a double-digit percentage.

Digital grew in all regions during the half, with mobile delivering the majority of the growth. The expansion of the single pool of inventory model also contributed positively to sales and is now live regionally with a total of 75 stores across the United States, EMEIA and China and serving all 44 online countries. In mainline, accessories continued to outperform apparel, with strength in scarves and ponchos. Within large leather goods, the new season runway rucksack and Banner bag also performed well. In apparel, customers responded well to an expanded assortment in the emerging category of dresses and while outerwear was affected by the unseasonably warm weather. During the second half, the company opened five mainline stores and closed eight as we continued to evolve our retail portfolio globally.

Wholesale revenues decline 1 percent

Total wholesale revenue of 330million pounds (466.2 million dollars) in the second half was down 1 percent year-on-year on an underlying basis. Excluding Beauty, wholesale revenue decreased by 6 percent underlying. EMEIA delivered a mid-single-digit percentage increase, reflecting growth from existing accounts and the benefit from the transition of childrenswear in Europe to direct operation. Americas and Asia Pacific saw double-digit percentage declines, reflecting cautious ordering by wholesale customers.

In the second half, licensing revenue declined 50 percent underlying, principally reflecting the planned expiry of the Japanese Burberry licences during the financial year.

Outlook remains cautious

In FY 2017, net new space is expected to contribute low single-digit percentage growth to total retail revenue. Around 15 mainline store openings are planned, with a similar number of closures. Burberry expects total wholesale revenue at constant exchange rates in the six months to September 30, 2016 to be down by around 10 percent on the same period last year. Total licensing revenue for FY 2017 is planned to be down by about 20million pounds (28.2 million dollars at constant exchange rates, primarily reflecting the expiry of the Japanese Burberry licences.

The company currently expects FY 2017 adjusted profit before tax to be around the bottom of the range of analysts’ expectations. This reflects the above guidance, coupled with its continued expectation that the demand environment remains challenging and that underlying cost inflation pressures persist.