ii view: is luxury retailer Burberry now dressed for success?

Full-year results to 29 March

• Revenue down 17% to £2.46 billion
• Adjusted operating profit down 94% to £26 million
• No dividend payment during this financial year 
• Net debt including lease liabilities flat at £1.12 billion

Guidance:

• Expects to deliver profit margin improvements over the year ahead

Chief executive Joshua Schulman said:

“After a challenging first half, we have moved at pace to implement Burberry Forward, our strategic plan to reignite brand desire, improve our performance and drive long-term value creation. Our customers are responding to our Timeless British Luxury brand expression. 

“While we are operating against a difficult macroeconomic backdrop and are still in the early stages of our turnaround, I am more optimistic than ever that Burberry's best days are ahead and that we will deliver sustainable profitable growth over time."

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ii round-up:

Founded in 1856, Burberry Group (LSE:BRBY) today employs around 9,000 people. 

Competing against rivals such as Hugo Boss AG (XETRA:BOSS) and Ralph Lauren Corp Class A (NYSE:RL), Burberry largely sells clothing products including outwear and leather goods. 

Burberry products are sold on both a retail and wholesale basis, with retail generating just over four-fifths of revenues and wholesale providing most of the balance.

Retail outlets as of late March numbered 229 stores, 139 concessions, 54 outlets and 33 franchised stores.

For a round-up of this latest trading update announced on 14 May, please click here.

ii view:

Chief executive Joshua Schulman, appointed in July 2024, came to Burberry having worked at companies including Michael Kors, Coach, Jimmy Choo and Gucci. A targeted recovery under its ‘Forward Burberry’ programme now includes plans to reignite brand desire, rebalance the product offering and re-introduce lower pricing points, as well as cut costs. 

Geographically, Asia Pacific dominants at 44% of retail sales in this latest financial year. That was followed by the combined Europe, Middle East, India and Africa (EMEIA) region at 35% and the Americas the balance of 21%. 

For investors, profits dropped dramatically over this last year with no guarantees that their latest recovery plan will work. Factors outside of its control such as the UK’s ongoing withdrawal of VAT refunds for overseas visitors and the influence of the weather on demand should not be overlooked. A challenged economy for Asia Pacific’s key country China and strained relations between the West and China warrant consideration. Costs generally for businesses remain elevated, while Burberry’s halted dividend payment contrasts with yields of over 3% for fellow retailers Tesco (LSE:TSCO), Kingfisher (LSE:KGF) and Dr. Martens Ordinary Shares (LSE:DOCS).  

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More favourably, the fall in same store, or like-for-like sales at its key Asia Pacific business reduced to 9% in Q4 from declines of 20%-plus in Q1 and Q2. Management initiatives now include annualised cost savings of £100 million by full year 2027. A halting of the dividend provides increased spending flexibility, while previous rumours of takeover interest could resurface should Burberry’s recovery push derail. 

In all, new management initiatives now offer hope, but it's a tricky call. Shares have staged a partial recovery and are less of a bargain, which means more cautious investors may demand firmer evidence of a potentially long-lasting recovery.  

Positives: 

• New strategic focuses
• Product and geographical diversity

Negatives:

• Difficult relations between the West and China
• Currency movements can provide headwinds

The average rating of stock market analysts:

Hold