Burberry results disappoint as APAC and Americas struggle, RTW underperforms

Hopes weren’t exactly high ahead of Burberry’s full-year results announcement on Wednesday and predictions of a disappointing recent performance in China came true.

There were few upbeat notes in a tough-to-read release for the 52 weeks to the end of March and even with low expectations already in, the firm’s shares fell in early trading after the results were shared.

CEO Jonathan Akeroyd summed it up: “Executing our plan against a backdrop of slowing luxury demand has been challenging.” But he added: “While our FY24 financial results underperformed our original expectations, we have made good progress refocusing our brand image, evolving our product and strengthening distribution while delivering operational improvements. We are using what we have learned over the past year to fine-tune our approach, while adapting to the external environment. We remain confident in our strategy and in our ability to successfully navigate this period.”

The numbers

So let’s look at the preliminary figures for the year. Overall revenue fell 4% to £2.968 billion on a reported basis but managed to be flat at constant exchange rates (CER).  

Retail was down 4% on a reported basis at £2.4 billion but rose 1% CER. Within this, retail comparable store sales were down 1% after having risen 7% in the previous year. 

Wholesale dropped 7% reported and 5% CER to £506 million and licensing was up 23% at £62 million.

Given the backdrop of the market conditions for luxury, that revenue fall might not look too bad, after all Burberry remains an almost £3 billion brand. 

But a more detailed look at the figures shows that some of the key regions it’s targeting were particularly weak and in the latest quarter, the picture worsened. Key categories underperformed too.

That comparable sales fall may only have been 1% for the full year but it was 12% for Q4. And while Asia-Pacific was up 3% for the year, it dropped 17% in the final quarter. Mainland China increased 2% in the year and fell 19% in Q4. The Mainland Chinese customer group fell 12% in that quarter vs last year, with tourism accounting for almost a quarter of the customer group sales globally.

South Korea declined 8% in the year and 17% in Q4, with the customer group down 12%. Koreans buying abroad rose in double-digits, with tourist spend mainly in EMEIA and Japan.

Japan itself saw strong growth, up 25% in the year and 18% in Q4, supported by tourist spend that more than doubled, accounting for half of region’s sales in the quarter.

The Americas stayed steadily weak, down 12% for both the year and the quarter. It’s continuing to see a “relatively broad-based decline in the region across our local customers”.

And EMEIA may have risen 4% for the year, but it was down 3% in Q4. The region benefited from strong tourist growth but with Q4 pressure from local consumer spending that fell in low double-digits.

As for categories, It saw a strong performance from outerwear (up by a high single-digit percentage in the year), led by Heritage rainwear. Scarves grew in double digits. Leather goods performed “broadly in line with the group average”, which doesn’t sound great. And ready-to-wear for both men’s and women’s “landed below the group average” down in mid single-digits.

The company said that the first half had been “robust” but described the second half as “challenging”.

Profits decline

The ever-tougher environment for luxury had a big impact on profits and that was where the trickiest numbers came in.

Adjusted operating profit fell 34% to £418 million, with the previous having included boosters like rent concessions and property sales. It meant reported operating profit at £418 million was down a bigger 36%. And profit before tax was down 40% at £383 million with attributable profit down 45% at £270 million.

So with RTW performing badly, does this mean that the new vision being actioned by the CEO and creative chief Daniel Lee isn’t working? The company doesn’t think so and appears fully committed to its strategy.

It said strategic progress was made in FY24 on its “refocused storytelling around Modern British Luxury” with “improved brand perception and double-digit growth in elite customer numbers and spend”.

It has elevated the “aesthetic and quality” of the seasonal offer and has “begun to reinvigorate larger, core collections”. And it has strengthened the distribution network with more than 50% of stores now new or refurbished.

Its priorities for the current year are to “refine brand expression and increase product focus in storytelling; and strengthen how and where we engage new and existing clients to deepen connection with them”. It aims to build out the full product offer, ensuring a “balance between seasonal and core collections” and “enhance” the  retail store experience and focus on conversion. It also aims to elevate the customer experience online and “rationalise” the wholesale channel in EMEIA “to further increase control of distribution”.

Does it expect all of this to yield fast results? Not really, although further into the year, perhaps. It said that with “a still uncertain external environment, we expect H1 to remain challenging. We expect to see the benefit of the actions we are taking from H2”. 

Wholesale revenue will likely fall 25% in H1 as it increases control of distribution. 

And Burberry “will continue to balance investment in consumer-facing areas with disciplined cost control to support our growth ambition. We have identified cost savings to enable us to offset the impact of inflation in the second half.”

Analyst view

Burberry may be sticking to its strategy but analysts say it has a lot of work to do. Yanmei Tang of research consultancy Third Bridge said that after interviewing a number of executives in the luxury space, it believes Burberry “is struggling to clearly define and elevate its brand identity, resulting in confusing messaging and poor sales growth. There is too much reliance on a new creative direction rather than making operational changes.”

Tang said it “needs to take risks by launching innovative products to succeed. But they also face investor pressure and resource constraints as a standalone brand compared to giants like LVMH and Kering.”

She seemed to endorse the move away from wholesale saying over-reliance on this channel had “harmed the brand’s image and margins, despite boosting sales.” 

But she think Burberry needs to be realistic and that “setting ambitious targets to double leather goods sales and increase outerwear sales by 50% is unrealistic given the competitive pressures and operational challenges”.