Burberry Re­tail Sales Rise 3% in First Quar­ter

Sales were 479 mil­lion pounds in the 13 weeks to June 30.

WWD Digital Daily - - Front Page - BY SA­MAN­THA CONTI

LON­DON — The heat is on at Burberry, which re­ported a 3 per­cent uptick in first-quar­ter re­tail sales to 479 mil­lion pounds, broadly in line with an­a­lysts' pro­jec­tions, and which is fine-tun­ing its com­mer­cial model ahead of Ric­cardo Tisci's run­way de­but in Septem­ber.

Driv­ers be­hind the growth were Chi­nese tourists, who have shifted their at­ten­tion away from Europe and to Asia-Pa­cific, and the U.S., which has be­gun to em­brace Burberry once again.

Dig­i­tal sales also fu­eled the uptick in the quar­ter, with mo­bile now the largest dig­i­tal chan­nel for Burberry. Lo­cal and re­turn­ing “top cus­tomers,” the new Far­fetch col­lab­o­ra­tion, which ex­poses Burberry to a larger au­di­ence, and a new strat­egy of sell­ing a to­tal look rather than pieces to cus­tomers were other contributors to un­der­ly­ing growth.

At re­ported ex­change rates, re­tail sales were flat while com­pa­ra­ble store sales

grew 3 per­cent in the 13 weeks to June 30. Burberry shares closed down 3.8 per­cent, fall­ing to 20.22 pounds on the Lon­don Stock Ex­change.

Chief ex­ec­u­tive of­fi­cer Marco Gob­betti, who has been spear­head­ing changes at the com­pany, said Burberry was pleased with its progress in the pe­riod, and the team has em­braced Tisci's cre­ative vi­sion and is work­ing well to­gether ahead of the show.

“While we know it will take time to achieve our am­bi­tions, our progress to date — and the en­ergy in and around the com­pany — give me con­fi­dence for the fu­ture,” said Gob­betti, who had warned back in Novem­ber that his five-year plan would en­tail two years of flat rev­enue growth and ad­justed op­er­at­ing mar­gin.

Burberry, which is gear­ing up for Tisci's first run­way show for the brand on Sept. 17 dur­ing Lon­don Fash­ion Week, has also con­firmed a new way of work­ing — and ad­dress­ing the cus­tomer.

As first re­ported ex­clu­sively by WWD on Tues­day, Tisci is plan­ning a lim­ited- edi­tion cap­sule col­lec­tion as part of his run­way de­but.

The col­lec­tion will start de­liv­er­ing from Septem­ber, and nods to a new rhythm of reg­u­lar de­liv­er­ies from Burberry that are meant to en­gage the con­sumer all year round.

The brand has moved on from its see-now-buy-now strat­egy and is more in­ter­ested in drip-feed­ing new de­signs onto the shop floor — and dig­i­tal screen. Ear­lier this month, Tisci re­vealed a col­lab­o­ra­tion with one of his de­sign idols: Vivi­enne West­wood, who will “reimag­ine” sig­na­ture Burberry styles that will launch in-store in De­cem­ber.

“Ric­cardo is re­ally ex­cited about West­wood, and the col­lab­o­ra­tion is driv­ing heat, cus­tomer en­gage­ment and ex­cite­ment around the brand,” said Julie Brown, Burberry's chief op­er­at­ing of­fi­cer and chief fi­nan­cial of­fi­cer, dur­ing a call fol­low­ing Wed­nes­day's trad­ing up­date.

She called the new, fre­quent de­liv­ery model “in­dus­try-driven,” and said the de­liv­er­ies are meant to spark “in­ter­est, ex­cite­ment and brand heat.” There will also be a big di­rect-to-con­sumer el­e­ment.

The lim­ited-edi­tion cap­sule that Tisci is do­ing as part of his de­but will be avail­able for mem­bers of the pub­lic to buy in a se­ries of in­stant drops from Septem­ber, and the com­pany also clar­i­fied that its ramped-up con­sumer en­gage­ment won't end with prod­uct.

Burberry is plan­ning “com­mu­ni­ca­tions and ex­pe­ri­ences to sur­prise and de­light” cus­tomers and wants to sus­tain a “reg­u­lar con­ver­sa­tion” with them through­out the year. Burberry said the new model is an evo­lu­tion from see-now-buy-now. Ob­servers had long ques­tioned whether that strat­egy was a suc­cess an even the com­pany ad­mit­ted it meant that mer­chan­dise sat in-store for around four months un­til the usual sea­sonal prod­uct be­came avail­able.

“This evolved model is more dy­namic with new prod­uct and con­tent more of­ten,” the com­pany said.

Burberry's first-quar­ter gains were in line with most es­ti­mates, although an­a­lysts said the mo­ment of truth will come af­ter Tisci's first show.

No pres­sure there.

“All eyes are on the feed­back me­dia will pro­vide in Septem­ber to Tisci's first col­lec­tion. Un­til then, it's just go­ing to be a wait­ing game,” said Luca Solca, sec­tor head, lux­ury goods at Ex­ane BNP Paribas.

He has said Gob­betti's se­nior man­age­ment team has “a ster­ling rep­u­ta­tion and a proven track record of team­work, at least in the key po­si­tions. Although the risk of overex­cite­ment is still there, the down­side of the tran­si­tion phase seems de­fused, and man­age­ment has so far been canny in guid­ing on the tran­si­tion. How brand el­e­va­tion will be car­ried out is key.”

On Wed­nes­day, UBS' He­len Brand, equity re­search an­a­lyst, said “the fo­cus re­mains on the new cre­ative direc­tor's first run­way show on Sept. 17.”

Burberry's an­nual meet­ing takes place this week, and then it won't re­port again un­til Nov. 8, when it re­veals its num­bers — and ini­tial re­ac­tions to Tisci's de­signs — for the six months to Sept. 29.

In the first quar­ter, it was the Chi­nese tourist who was hun­gry for Burberry — not in Europe, but in Asia-Pa­cific, which grew by a mid-sin­gle-digit per­cent­age, Burberry said.

Main­land China grew and Hong Kong, South Korea and Ja­pan all ben­e­fited from Chi­nese spend­ing shift­ing more to Asian tourist des­ti­na­tions in the re­gion.

Asked whether Burberry plans to ad­just prices in China, fol­low­ing Louis Vuit­ton, which re­duced prices in re­sponse to the Chi­nese gov­ern­ment's new, lower im­port du­ties, Brown said the jury was still out.

“We are still as­sess­ing it at this point. We're sup­port­ive of the Chi­nese gov­ern­ment's de­ci­sion to lower du­ties and we'll up­date on our plans in due course,” she said.

EMEIA, or Europe, the Mid­dle East,

In­dia and Africa re­gion, de­clined by a lows­in­gle-digit per­cent­age, with softer tourist de­mand im­pact­ing both the U.K. and Con­ti­nen­tal Europe. The Mid­dle East re­mained weak due to macro fac­tors, Burberry said.

The U.K. in par­tic­u­lar was hard hit, on a com­par­a­tive ba­sis, as sales a year ago had been buoyed by the post-Brexit ref­er­en­dum's weak pound.

Brown added that the rise in Asia-Pa­cific de­mand and the de­cline in Europe were most def­i­nitely linked. Chi­nese clients, who make up a large part of Burberry's busi­ness, “will move with cur­rency,” she said.

The Amer­i­cas grew by a high-sin­gle-digit per­cent­age due to im­proved trends that emerged in the fourth quar­ter of last year, with foot­fall pos­i­tive, Burberry said.

Gob­betti and his team have been mak­ing ma­jor ef­forts to re­po­si­tion the brand with U.S. de­part­ment stores, and Brown said the com­pany was “very en­cour­aged by the per­for­mance in the U.S. mar­ket, with higher traf­fic com­ing through.”

She added that re­tail is also show­ing signs of good growth.

With re­gard to prod­uct, Burberry said the newly launched hand­bags, such as the Belt and D-ring, per­formed well, while rain­wear grew, with strength from Car Coats and sea­sonal trop­i­cal gabar­dine.

The com­pany said ex­change rate changes won't be as bad as ex­pected for the full fis­cal year, and the ex­pected im­pact of rates on re­ported ad­justed op­er­at­ing profit is around 25 mil­lion pounds ad­verse, an im­prove­ment of about 15 mil­lion pounds com­pared to the pre­vi­ous guid­ance of around 40 mil­lion pounds ad­verse.

The change is prin­ci­pally due to the pound de­pre­ci­at­ing against the U.S. and Hong Kong dol­lars. Burberry added that for the full year it ex­pects a “mar­ginal” cur­rency ben­e­fit to rev­enue, with a head­wind in the first half more than off­set by a ben­e­fit in the sec­ond.

Ric­cardo Tisci will col­lab­o­rate with Vivi­enne West­wood for Burberry.

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