Burberry FY16 revenue down, initiates three year plan to drive growth
loading...
In its preliminary results announcement for the year ending March 31, 2016, Burberry has said that the company’s revenue reached 2.5 billion pounds (3.1 billion dollars) down 1 percent underlying. Comparable sales declined 1 percent but were up 3 percent excluding Hong Kong and Macau. Adjusted PBT stood at 421 million pounds (525 million dollars), down 10 percent. The company also detailed ambitious three year plan to drive revenue growth, improve productivity and deliver at least 100 million pounds (124 million dollars) of cost savings as challenging external environment continues.
Commenting on the plan, Christopher Bailey, Chief Creative and Chief Executive Officer, said in the company statement, “While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to drive Burberry's future outperformance, underpinned by strong brand and business fundamentals.”
After subdued results, announces measures to drive growth
Retail/wholesale revenue remained unchanged underlying and adjusted operating profit was down 8 percent. Licensing revenue decreased by 33 percent underlying, down 37 percent at reported FX, reflecting the expiry of the Japanese Burberry licences. With lower allocated operating expenses, licensing profit was 36.9 million pounds (45.9 million dollars), down 29 percent underlying (down 34 percent at reported FX). Adjusted operating margin was 15.4 percent against 16.3 percent last year and adjusted diluted EPS decreased 9 percent to 69.9p. Reported diluted EPS was down 8 percent.
The company said, with revenue broadly unchanged year-on-year and adjusted profit before tax down 10 percent underlying, Burberry’s performance in FY 2016 reflected a difficult period for the luxury sector as a whole as demand slowed in many markets for both cyclical and structural reasons and since the start of FY 2017, the external environment has remained challenging and underlying cost inflation pressures persist.
With this scenario, the company’s initiatives to deliver enhanced revenue growth and improved productivity include, strong brand with significant opportunities by channel, product and region, plan to outperform sector growth over time, focus on key products, retail productivity and e-commerce, in-depth review of ways of working results in plan to reduce complexity and simplify processes to enable future growth and programme to deliver annualised cost savings of at least 100 million pounds by FY 2019.
Retail sales up 1 percent, wholesale suffers
Retail now contributes 73 percent share of revenue; with 215 mainline stores, 214 concessions within department stores, digital commerce and 58 outlets. Retail sales increased 1 percent underlying but comparable sales were down 1 percent but up 3 percent excluding Hong Kong and Macau. The company said new space contributed the balance of growth at 2 percent. Digital grew in all regions. Burberry noted that following a strong first quarter of the year with comparable sales growth of 6 percent, the luxury sector became more difficult during the balance of the year.
With retail accounting for over 85 percent of revenue in the region, Asia Pacific saw a mid-single-digit percentage decline in comparable sales during the year. Hong Kong, which accounted for 9 percent of global retail/wholesale revenue, remained a challenging market throughout the period affected by significantly lower footfall. Excluding Hong Kong and Macau, Asia Pacific delivered a low to mid-single-digit percentage increase in comparable sales. Mainland China and Korea both showed positive comparable growth during the year, improving in the second half. During the year, Burberry opened seven mainline stores and closed seven, while opening 20 concessions and closing 20. Flagship stores were opened in Seoul, Korea and Shinjuku, Tokyo an additional 17 concessions were opened in Japan, while the store portfolio was further upgraded in mainland China and Korea.
Europe, Middle East, India and Africa (EMEIA) comparable sales for the year increased by a mid-single-digit percentage. The United Kingdom and the Middle East, which together accounted for over 40 percent of EMEIA’s total retail revenue, were difficult across the period for both domestic and travelling luxury customers. Continental Europe delivered double-digit percentage comparable growth in the first three quarters of the year but declined in the fourth quarter. During the year, we opened 13 mainline stores and concessions and closed 11.
Comparable sales in the Americas were unchanged year-on-year, with retail accounting for nearly 70 percent of regional revenue. Together, Canada, Brazil and Mexico, which contributed over 15 percent of Americas total retail revenue, delivered double-digit percentage comparable growth during the year. The store portfolio in the Americas was relatively stable during the year, with two mainline openings and three closures and our first concession opening in Mexico bringing the total number of stores in that country to five.
Wholesale’s contribution is 25 percent of the total revenue. Wholesale revenue down 2 percent underlying and excluding beauty, it was down 6 percent underlying. The company operated 62 franchise stores globally at March 31, 2016, a net decrease of five during the year. Underlying revenue was down by a double-digit percentage in both the first and second halves in Asia-Pacific, reflecting cautious ordering from travel retail customers. Europe, Middle East, India and Africa (EMEIA) wholesale revenue for the year was broadly unchanged.
Wholesale in the Americas was down by a mid-single-digit percentage in the year, largely reflecting a more difficult consumer environment for department store customers in the United States, leading to cautious ordering. Revenue from our global product licences increased by a double-digit percentage during the year, including some phasing benefits.
Expects low- single-digit growth in FY17
For the fiscal year 2017, net new space is expected to contribute low single-digit percentage growth to total retail revenue. Around 15 mainline store openings are planned, with a similar number of closures. Burberry expects total wholesale revenue at constant exchange rates in the six months to September 30, 2016 to be down by around 10 percent on the same period last year.
Total licensing revenue for FY 2017 is planned to be down by about 20 million pounds (24 million dollars) at constant exchange rates, reflecting the expiry of the Japanese Burberry licences. The company expects adjusted profit before tax to be towards the bottom of the range of analysts’ expectations and more second-half weighted than in FY 2016.
Summary- In FY17, new space is expected to contribute low single-digit percentage growth to total retail revenue.
- Adjusted profit before tax expected to be towards the bottom of the range of analysts’ expectations.
Picture: Burberry