A small mercy perhaps, but at least much of the sting from these numbers was taken at the time of the group’s shock announcement in July, when Burberry (LON:BRBY) announced a change of Chief Executive, a suspension of the dividend and a likely operating loss for the half-year.
Even so, the numbers make for difficult reading. Revenue declined by 22% to £1.09 billion for the period, with an adjusted operating loss of £41 million compared with a profit of £223 million the previous year. Retail revenues, which account for 80% of the group total, while wholesale declined by 30%.
There was a negative adjusted operating margin of 3.8%, compared to a positive 15.9% previously, suggesting that production costs were not matched by revenues. Planned cost savings of £40 million per annum in the future and £25 million this year do relatively little to rescue the current state of affairs.
By region, the well-reported woes in China have had a significant impact on the group while more generally the pressure on the luxury sector have also weighed. The Asia Pacific region is made up of 90% retail by mix and accounts for 42% of group revenues. As such, a decline of 25% in sales has had a material impact, although tourist sales are showing some signs of life with growth estimated to be up in the double digits compared to last year in Japan.
Looking Ahead
In terms of outlook, Burberry estimates that wholesale revenues will decline by 35% over the year as a whole but, more importantly, that it is too early to say with any conviction that the second-half performance will be enough to offset the losses incurred in this reporting period.
Indeed, the new strategy is unlikely to result in overnight success although the group’s aspirations have been clearly stated. Burberry wishes to return to a more focused and traditional luxury brand, with particular emphasis on the outerwear for which it has become traditionally known while eschewing the more modern and niche launches which simply did not resonate with its customers. The group also acknowledges that its pricing policy, especially for leather goods, was too rich for its “category authority” in the space.
The Burberry brand has moved away from its traditional British traits of heritage and innovation, which had previously clearly appealed to overseas buyers and particularly tourists with an aspirational and stylish look. If the new world starts here, the group will need to regain the ground lost over recent times as competitors have moved ahead, and any such transformation will mostly come with a time lag of itself, as the revitalised brand re-enters the consumer consciousness.
Burberry can only hope that these results represent a line in the sand and that its revised energy will return it to previous glories. It is impossible to estimate how much of its cachet has already been lost, let alone the wider headwinds such as the economic situation in China which continue to be uncertain.
The share price decline has been severe and relatively concentrated, with a decline of 72% from a peak of over £26 reached as recently as April 2023. Over the last year, the shares have fallen by 56%, including relegation to the FTSE Mid-Cap 250, which itself added 9.8% over that period.
A brief bounce over the last few weeks after unconfirmed reports of a bid approach from Moncler of Italy has been followed by a positive share price reaction to these numbers and the group’s intent, although both are far from sufficient to stem the decline. In the meantime, and despite the group’s renewed determination, the market consensus of the shares as a sell is unlikely to waver until such time as some measurable progress is made on the new strategy.
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