Burberry sales decline slows again under new CEO 

This chequered first-quarter update from Burberry Group (LSE:BRBY) highlights the scale of the challenge ahead, although there are some encouraging signs.

Comparable store sales were down by 1% in the 13 weeks to 28 June versus the corresponding period a year ago, but not only was this less than the 3% decline which had been expected, but it represented the third consecutive quarter of improvement since the new CEO was installed. It also implies that a return to growth could come as early as the current quarter, which would relieve some of the pressure which the group is facing.

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A revenue decline of 2% at constant currency to £433 million comprised a mixed bag by geography. The Greater China and Asian Pacific regions remain areas of particular concern, with sales declines of 5% and 4% respectively. Indeed, consumer sentiment was on shaky ground even before the reciprocal tariffs which could yet damage the US and Chinese economies, and the outlook is uncertain.

In addition, Burberry had previously pointed out that UK business continues to be seriously impacted by the withdrawal of VAT refunds for overseas visitors, which has led to the UK being the least competitive destination in Europe for tourist shopping. Despite this headwind, EMEIA sales rose by 1%, with local spend more than offsetting the drop in tourist demand.

There was also a positive outturn from the Americas, where sales growth of 4% was attributed to new customers. There may be a caveat here however, since it is unclear how much of this additional spending is the result of consumer purchases being pulled forward in anticipation of wider tariff impacts.

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The outlook comments are proof if it were needed of the turnaround hurdles. Although the group estimates cost savings of £80 million this year, it is also prioritising investment which will result in capital expenditure of £130 million, while the current level of exchange rates could add a hefty £85 million hit to revenues. There is also likely to be a restructuring charge of around £50 million and a mid-teen percentage fall in wholesale revenues, so the improvement in margin and sales will be sorely needed in the coming months.

Amid the noise, the “Burberry Forward” strategy which the group announced in November is clearly beginning to have a positive impact, but the transformation will take time to filter through.

The Burberry brand is one which had moved away from its traditional British traits of heritage and innovation, which had such appeal 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, notwithstanding a tough backdrop for luxury brands on weaker demand. The group wishes to return to a more focused and traditional luxury brand, with particular emphasis on the outerwear for which it has become traditionally known, which is currently outperforming expectations. 

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The share price movements encapsulate the current position perfectly, with a warmer initial opening adding to recent progress. A sharp spike of 91% over the last three months contributed to a jump of 70% over the last year, as compared to a gain of 2.5% for the wider FTSE250, and this rally may be enough, if maintained, to put Burberry in with a shout for promotion back to the FTSE100 in the September reshuffle.

Despite this strength, however, the share price has fallen by 40% over the last two years and is 52% away from its record high which was set in April 2023. In the meantime, the focus on the group’s recovery is of paramount importance and the market consensus of the shares as a hold, albeit a strong one, reflects the fact that not all investors are yet ready to buy into the story until there is further proof of improving fortunes.