Burberry sales growth was promising and stable
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Luxury fashion label Burberry was delivering growth in sales and profitability ahead of expectations last year – until Covid-19 stopped the momentum in its tracks.
“Since then, the global health emergency has had a profound impact on the world, our industry and Burberry but I am very proud of the way we have responded,” explained CEO Marco Gobbeiit in the company’s preliminary results announcement.
“We have taken swift action to mitigate the financial impact on our business while prioritizing the safety and wellbeing of our teams and customers. We have a strong balance sheet and liquidity, with space for investment when markets recover.”
Fourth-quarter sales slumped by 27 percent year on year as the company was forced to shutter about 60 percent of its retail stores to comply with lockdowns and social-distancing measures around the world. Prior to that, sales were running at 4 percent ahead of the previous year.
Full-year revenue of £2.633 billion was down just 4 percent.
With a solid first three quarters, Hong Kong-listed Burberry ended the year to March 28 with an operating profit of £189 million, down 57 percent on a reported basis, primarily due to £244 million of adjustments such as impairments inventory provisions and other charges resulting from the expected impact of the pandemic.
Despite the challenges, Gobbetti said Burberry had found new ways to strengthen its connection with consumers, drawing on its digital leadership. The company achieved double-digit growth in followers and engagement on social media platforms, including through the crisis.
“We have also mobilized our resources in support of the relief efforts. It will take time to heal but we are encouraged by our strong rebound in some parts of Asia and are well-prepared to navigate through this period. Now, more than ever, our strategy to secure our position in luxury fashion is key,” he said.
Year-to-date sales since March in Mainland China and South Korea are already ahead of last year and continue to show an improving trend, the company said, suggesting consumers are returning to stores once lockdowns are lifted.
“We have a strong balance sheet and liquidity, with space for investment when markets recover.””
During the last financial year, Burberry has opened flagship stores in IFC Shanghai, China World Beijing and Tokyo’s Ginza district. The transformation program converting stores into the company’s new format has seen 64 completed including one in every major city around the world. To date 23 ‘non-strategic’ stores have been closed with the pre-announced rationalization due to be completed this year.
Gobbetti said he cannot forecast the company’s performance for the current year as the course of the pandemic and longer-lasting economic impact is difficult to predict.
“We currently have 50 percent of our store network closed and we expect our first quarter (to June 2020) to be severely impacted with store closures likely to be at or near peak for most of the quarter. We are leveraging our digital platforms to forge stronger connections with our customers and have mitigation plans to conserve cash and reduce operating costs, whilst retaining flexibility to respond rapidly and optimize revenues in markets as they start to recover.”
Burberry finished March with a strong balance sheet with cash of £887 million to hand.
Sofie Willmott, lead retail analyst at GlobalData, said Burberry’s performance prior to the impact of Covid-19 was showing “green shoots of recovery” in Europe.
She said that with many consumers apprehensive about traveling abroad this year, Burberry will see its sales in the US, Europe and the Middle East – markets usually boosted by Asian tourists – move to Asia Pacific until shoppers feel confident traveling globally again.
“Burberry has a robust online proposition which will help to protect its overall sales throughout the pandemic. It is in a better position than most luxury brands considering it has heavily invested in online in recent years, has an engaged digital following and regularly brings innovative concepts to its customer base, such as a live-streamed tour of its flagship Shanghai store with influencer Yvonne Ching, which attracted 1.4 million viewers,” said Willmott.
“Other luxury retailers pale in comparison to Burberry when it comes to their digital presence and the brand’s commitment to the online channel will help to weather the coronavirus storm.”
She added that improvements Burberry has made to its product range to focus on new collections and its monogrammed logo, have reignited the brand’s appeal in the last year, attracting younger consumers which will help to boost sales in the long term.
Questions & Answers
Q.What was the main financial impact of Covid-19 on Burberry's fourth-quarter sales?
What was the main financial impact of Covid-19 on Burberry's fourth-quarter sales?
Fourth-quarter sales slumped by 27 percent year on year due to the company being forced to shutter approximately 60 percent of its retail stores. This was to comply with global lockdowns and social-distancing measures.
Q.How did Burberry's operating profit for the year to March 28 compare to the previous year?
How did Burberry's operating profit for the year to March 28 compare to the previous year?
Operating profit was £189 million, representing a 57 percent decrease on a reported basis compared to the previous year. This was primarily due to £244 million in adjustments from the pandemic's expected impact.
Q.What is Burberry's outlook for the first quarter ending June 2020?
What is Burberry's outlook for the first quarter ending June 2020?
The first quarter is expected to be severely impacted, with 50 percent of the store network currently closed. Store closures are likely to be at or near peak for most of the period.
Q.Which markets are showing signs of recovery for Burberry?
Which markets are showing signs of recovery for Burberry?
There is a strong rebound in some parts of Asia, with year-to-date sales since March in Mainland China and South Korea already ahead of last year. This trend continues to improve as lockdowns lift.
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