- Q3 sales better-than-feared
- Turnaround strategy showing promise
- Full-year 2025 guidance upgraded
British luxury fashion house Burberry (BRBY) topped the FTSE 250 on 24 January, its shares rallying 16% to £12.41 after the footwear-to-leather accessories designer delivered a far better-than-feared drop in third quarter sales.
This performance stoked optimism that new chief executive Joshua Schulman’s ‘Burberry Forward’ turnaround strategy to reignite growth and deliver long-term shareholder value is starting to produce results.
Rival Richemont’s (CFR:SWX) recent results indicated an overall improvement in luxury demand across all countries and Burberry also experienced a sequential improvement across all regions in Q3, notably in the US, while its core categories of outerwear and scarves have continued to outperform globally.
POSITIVE SURPRISE STATESIDE
For the 13 weeks to 28 December 2024, Burberry’s comparable-store sales were down 4%, handsomely beating the 12% decline called for by the stale consensus.
By region, the trench coats-to-cashmere scarves seller’s comparable-store sales ticked up 4% in the Americas, a positive surprise given the market was looking for an 8% decline, while revenues rose 4% in Japan too.
And while comparable sales in mainland China fell 7%, this represented a vast improvement on the 27% plunge seen in the second quarter.
GUIDANCE UPGRADED
Following the encouraging third quarter, Burberry delighted investors by upgrading full-year 2025 operating profit guidance.
Management now indicates an increased likelihood that the second-half profit will broadly offset the first-half loss, a much more optimistic outlook versus their previous stance of uncertainty over the second-half results.
WHAT DID SCHULMAN SAY?
‘We are encouraged by the response to our “It’s Always Burberry Weather” outerwear campaign and “Wrapped in Burberry” festive campaign,’ said Schulman.
‘These activations resonated with a broad range of luxury customers leading to an improvement in brand desirability and strength in outerwear and scarves. The acceleration of our core categories reinforces our belief that Burberry has the most opportunity where we have the most authenticity and that our strategic plan will deliver sustainable, profitable growth over time.’
That said, Schulman acknowledged it is ‘still very early in our transformation and there remains much to do’.
EXPERT VIEWS
Quilter Cheviot’s Mamta Valechha pointed out that Burberry’s efforts to clear out inventory through substantial discounts helped boost sales and manage stock levels effectively.
‘It’s also encouraging to see that Burberry’s back-to-basics strategy might be starting to show positive results, resonating well with consumers,’ said Valechha.
Russ Mould, investment director at AJ Bell, observed that the Asia Pacific region which has been central to Burberry’s success over the last decade or more continues to struggle thanks to China’s economic woes, but North America has ‘come to the rescue’ with sales increasing over the third quarter.
‘Burberry needs to reignite and define its brand in a way which will appeal to the kind of shopper with money to spend on high ticket price items,’ commented Mould.
‘Discounting might help lift sales in the short term but in the long run this does harm to the integrity of the brand. At the same time, the premiumisation strategy has had a negative impact by alienating aspirational younger customers which are key to its future growth. Schulman now needs to find a Goldilocks solution where the brand is neither seen as too cheap nor unattainably expensive.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Ian Conway) own shares in AJ Bell.
