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.

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