Burberry shares plunge on concerns about strategy
CEO’s new handbag line missing a designer after creative director departs firm
LONDON— Four months into the job, Burberry Group Plc’s new boss presented his vision for the company. Investors didn’t like what they heard, sending the stock tumbling the most in five years.
The problem: Marco Gobbetti’s new Burberry looks like a moreexpensive version of the existing one. The new chief executive officer promised to move a company known for utilitarian trench coats “firmly” into high-end luxury, but that’s going to cost Burberry as he weeds out underperforming shops and spruces up those that remain with a snazzier lineup of handbags.
Gobbetti also lacks the person to design those it-bags, after creative director Christopher Bailey announced his departure last week.
Burberry warned investors not to hold their breath waiting for the company to fill the post.
Burberry’s plan “will require substantial reinvestment and a two-year transition period to reinvigorate the fashion content in the product offer,” RBC analyst Rogerio Fujimori said in a note. “A lot of time and patience should be required from investors.”
Gobbetti’s plans mark an evolutionary shift from the approach pursued by ex-CEO Bailey. Under its former chief, the company had already moved to reduce its exposure to mass-market retail outlets in the U.S., where its image has been diluted by wide availability and extensive discounting, and streamlined its brand offering.
Investors were expecting more radical steps from an industry veteran who previously revamped LVMH’s Celine. Gobbetti, working with designer Phoebe Philo, gave the French fashion and leather brand an upscale gloss with a lineup of must-have handbags.
Burberry shares fell as much as 14 per cent after the company said revenue and the operating margin will be flat in 2019 and 2020, with £15 million ($25 million) of restructuring charges expected in the first of those fiscal years.
“Burberry, in terms of brand awareness, is one of the top, top brands,” Gobbetti said at a briefing in London. “We have no intention of alienating our customer base. But we also have the opportunity to capture some customers from other players and we will do that with a new creative vision.”
Gobbetti’s plan could cut earnings by 15 per cent for fiscal 2019 and 2020, Morgan Stanley analyst Elena Mariani said in a note. The store refurbishments and other upgrades will result in capital expenditure of £150 million during those years, Burberry said, with an increase to as much as £210 million in the medium term.
Finding a new creative director to replace Bailey will “take some time,” Gobbetti said, declining to comment on speculation about candidates.
Burberry creative director Christopher Bailey announced he would leave the company in 2018, flaming worries.