Burberry hails strong Q3, sales rise despite Hong Kong halving

By

Sandra Halliday

Published
Jan 22, 2020

Burberry’s Q3 trading update on Wednesday offered up further evidence of the strength of the firm’s growth strategy as it had what it called “a good quarter” and “continued to shift consumer perceptions of our brand and align the network to our new creative vision”.

This was helped by new product continuing to perform well, which is important because that new product now accounts for around 75% of the business’s mainline retail store offer.

And CEO Marco Gobbetti said the brand has seen an “excellent” response to its festive campaign and Lunar New Year activities,” which is particularly good news given how tough the festive season was for many UK firms and how important the Chinese New Year is as a shopping event.

Overall, the company said the 13 weeks to the end of December saw retail revenue rising 1% to £719 million, or 2% on a constant currency basis. But comparable store sales were up a pleasing 3%, having risen only 1% in the prior year period.

Growth was led by full-price sales, and while this was partially offset by lower levels of markdown inventory being available for the clearance sale and continued disruption in Hong Kong, that full-price focus meant the company still came out ahead.

The size of the dent Hong Kong’s woes are making in luxury revenues could be seen from the fact that Asia Pacific sales only grew by a low-single-digit percentage even though Mainland China was up in the mid-teens. Hong Kong’s sales halved — a giant sales fall in what should be one of luxury’s most important markets. 

But the company said that EMEIA grew by a high-single-digit percentage, supported by tourist spend, which particularly benefited Continental Europe. And the Americas region was “stable” as the US grew by a low-single-digit percentage, although the figures were partially offset by a weaker Canada performance.

Burberry also said it continued to see growth in apparel while accessories benefited from a “fuller leather goods offering”.

LOOKING AHEAD

The company now expects the full fiscal year’s revenue to grow by a low-single-digit percentage at constant currency (excluding the impact of the adoption of IFRS 16), up from previous guidance of “broadly stable”. And the adjusted operating margin is expected to remain broadly stable, despite the impact of the disruption in Hong Kong.

It all seems to be looking good in what’s now the second year of the plan to transform Burberry. The company said its focus in this phase is on “investing to elevate our product offering, re-energise our brand and align distribution to our new luxury positioning”. 

It believes it made good progress on these fronts in the quarter as it “increased the availability of new products and continued to evolve our retail and wholesale networks”. It’s continuing to see “a strong response from consumers” to Riccardo Tisci's new collections “delivering double-digit growth compared to the prior year”.

And as far as the success of its festive campaign, mentioned earlier, is concerned, the company said it achieved the highest ever number of views across major social platforms, more than doubling the prior year performance. And other activities such as a digital pop-up experience powered by Google Lens in London, the launch of it first online game B-Bounce and its recent extension, Ratberry, for its Lunar New Year campaign, have all gone down well.

The launch of the Lunar New Year campaign in December has “generated a strong early consumer response,” we’re told and this is making Burberry confident about its future Chinese activities that include its AW20 runway show in Shanghai and the soon-to-open social retail store in Shenzhen, in partnership with Tencent.

And talking of stores, the company is continuing to make-over existing locations and open new ones. In the period, it opened a new flagship store at the exclusive Ginza Marronnier building in Tokyo and added more sites to its revamp programme with around 60 stores now incorporating its new creative vision. At the same time, 16 smaller, non-strategic stores previously announced for rationalisation are now closed. 

In wholesale, it has carried on rationalising non-luxury doors and it remains on track for the closures in the US to be largely completed by the end of the year.