Lukewarm consumer demand affects Burberry revenues

In the first half, Burberry generated revenue of 1,105 million pounds (1,710 million dollars), including 2 percent underlying growth in retail revenue. In the second quarter, the company said that the demand from luxury consumers, particularly Chinese customers, was affected by a more challenging external environment. Wholesale and licensing revenues were broadly consistent with guidance.

Commenting on the results, Christopher Bailey, Chief Creative and Chief Executive Officer, said, “The external environment became more challenging during the half, affecting luxury consumer demand in some of our key markets. In response, we have intensified our focus on driving sales and productivity, while taking swift action on discretionary costs. While mindful of this external volatility, our plans for the festive season position us well to return to a more positive sales trend in the all-important second half.”

Marginal improvement in retail sales

Retail sales in the first half increased by 2 percent underlying and 3 percent at reported FX. Of the 2 percent underlying growth, comparable sales growth was 1 percent, with the balance from new space.

Asia Pacific delivered a mid-single-digit percentage comparable sales decline in the half, impacted by a further year-on-year deceleration in Hong Kong in the second quarter compared to the first, as footfall continued to drop. Mainland China comparable sales decreased slightly due to weakening consumer sentiment in the market in the second quarter. Excluding Hong Kong and Macau, comparable sales were broadly unchanged year-on-year in the first half. Japan saw comparable sales growth well in excess of 50 percent.

The company expanded retail presence, with the addition of its sixth free-standing store, in Shinjuku, Tokyo and the opening of a further six department store concessions, bringing the total to 19. It also assumed operation of ten children’s wear concessions. EMEIA delivered double-digit percentage comparable sales growth in the half, although growth moderated in the second quarter. With the travelling luxury customer generating about 60 percent of the region’s revenue, the company saw comparable sales growth in the first half in excess of 20 percent in Italy, France and Spain. This significantly outperformed the UK (over one-third of EMEIA’s retail revenue), given sterling’s strength against the euro.

The Americas delivered low single-digit percentage comparable growth. Directly-operated businesses in Canada, Brazil and Mexico (over 15 percent of Americas retail revenue) delivered double-digit percentage comparable sales growth in the period. The United States slowed in the second quarter, primarily reflecting uneven demand from both the domestic and tourist consumer.

During the first half, Burberry opened 13 mainline stores and closed nine. Openings included stores in the flagship markets of Dubai, London, New York, Seoul and Tokyo and our first directly-operated mainline stores in Bahrain and Moscow.

Wholesale and licensing revenues decline

Wholesale revenue in the first half decreased by 3 percent underlying and 4 percent at reported FX. This was broadly consistent with guidance. Excluding Beauty, wholesale revenue decreased by a mid-single-digit percentage underlying. Americas delivered low single-digit percentage growth, benefiting from some re-phasing of deliveries into the first half from the second half of this year. EMEIA declined by a mid-single-digit percentage as planned, reflecting continuing account rationalisation. Asia Pacific saw falling demand from travel retail customers, particularly in Hong Kong and Korea.

In the first half, licensing revenue declined by 18 percent underlying, 25 percent at reported FX, consistent with full year guidance. This reflects the impact of the planned Japanese licence transition and strong growth from global product licences, including a phasing benefit.

Low-single-digit growth expected in FY16

In FY 2016, net new space is still expected to contribute low single-digit percentage growth to total retail revenue. Burberry expects total wholesale revenue at constant exchange rates in the six months to March 31, 2016 to be broadly unchanged on the same period last year. In apparel and accessories, an underlying mid-single-digit percentage decline reflects cautious ordering by wholesale customers globally, as well as the re-phasing of orders in the Americas into the first half from the second half of this year.

Total licensing revenue for FY 2016 is still planned to be down by about 40 percent at constant exchange rates, due to the expiry of the Japanese Burberry licences. For FY 2016, it expects double-digit percentage growth from the global product licences and about 25 million pounds (38.6 million dollars) from Japan. The company expects that adjusted PBT will be broadly in line with the average of those analysts who have recently updated forecasts with a return to mid-single digit percentage growth in comparable sales in the second half.