Burberry’s half-year results on Thursday saw CEO Jonathan Akeroyd saying it made “good progress against our strategic goals, executing our priorities at pace”. That said, sales growth was muted, profit was down and it may not achieve its previous guidance if the backdrop stays weak. 

The company said “the slowdown in luxury demand globally is having an impact on current trading. If the weaker demand continues, we are unlikely to achieve our previously stated revenue guidance for FY24. In this context, adjusted operating profit would be towards the lower end of the current consensus range” of £552 million-£668 million. 

Clearly there are challenges as well as plus points. So let’s look at what happened in the first half. In the 26 weeks to the end of September, revenue rose 4% to £1.396 billion and was up 7% at constant exchange rates. But while retail comparable store sales were up 10%, in the second quarter alone they rose only 1%. That Q2 performance came as sales in the Americas dropped 10%, although they rose 2% in Asia Pacific (despite Chinese growth stalling) and 10% in EMEIA.

Looking at those figures in more detail, Asia Pacific grew 18% in the half with a strong Q1 recovery of 36% against a period that saw Covid-related disruption in Mainland China. The Q2 APAC slowdown came against a tougher comparative and China issues. Mainland China comparable store sales increased 15% in the half but Q2 fell 8% as spending shifted offshore, although the Chinese customer group grew 25%.

South Korea fell 1% in the half with a robust 6% growth in Q1 offset by a 7% decline in Q2. Meanwhile, Japan saw strong comparable store sales growth, up 43% in the half and 41% in Q2, driven by tourists.

EMEIA had another strong half with comparable store sales up 14%, and Q2 up by the aforementioned 10%. The region benefited from tourist growth of 39% for the half with the share of mix from tourists increasing to 51% of retail sales with a strong performance from American and Asian tourists

Continental Europe outperformed the regional average in the half but the UK continued to lag the mainland in attracting tourism spend, reflecting the end of VAT refunds for tourists in the UK since January 2021.

The Americas declined 9% in the half as well as seeing that Q2 10% drop. Burberry said that “while the American customer has remained weak overall, we are pleased with the progress made with our customer acquisition programme with an increased share of higher-income female clients”.

Product strengths

The company said it saw a good performance across its core, outerwear and leathergoods categories with outerwear comp store sales up 21% in H1 and 10% in Q2. Leathergoods rose 8% in H1 and 3% in Q2 led by 14% growth in bags “with ongoing momentum in icons such as the Vintage Check and new shapes introduced for Winter 23, such as the Knight bag and Trench tote gaining traction”.

It also saw a strong performance for Heritage rainwear across both men’s and women’s.

In addition, its beauty business generated “an excellent performance in the half, driven by the successful launch of our latest fragrance Burberry Goddess”.

Profit woes

But how did all that translate into profit? Adjusted operating profit was down 6% to £223 million, although it rose 1% at constant exchange rates. The adjusted operating profit margin fell to 15.9% from 17.7%. And pre-tax profit fell to £219 million from £251 million. 

What was behind the fall? Clearly the Q2 performance in the Americas was an issue. Plus H1 a year ago had also seen a £25 million benefit from certain unrepeated adjusting items. And this time adjusted net operating expenses rose by 10% at constant exchange rates and 7% on a reported basis due to investments in stores and marketing, as well as impact of inflation of people costs. Adjusted operating profit this half also included a £17 million foreign exchange dent compared to a £31 million exchange rate boost a year ago.

On the upside, the company said it “delivered a more coherent brand aesthetic with campaigns generating significantly improved brand clarity, supported by a series of high-impact activations”.

And it launched the Winter 23 collection, “broadening distribution and ensuring greater visibility in stores compared with previous seasons”. It added that its “new product complements [the] core offer and early indicators are encouraging”.

And Burberry said it “continued to invest in our creative vision with campaigns and activations that were recognisably Burberry and told a coherent brand story. Our Winter 23 campaign showcased our new offer with a distinctive visual language that celebrated our new and enduring brand codes and placed product centre stage. The strong level of interest from fashion editors globally led to higher volumes of editorials with more than two times the reach of our previous Winter campaign”.

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