Burberry Profits Fall 6.5 Percent: Company Sets Growth Plan, Increases Dividend

Burberry Fall 2016 Shoes On The
Burberry RTW fall '16 runway collection.
Giovanni Giannoni/Fairchild.

LONDON — Burberry is adopting a stricter silhouette — tightening operations, slashing its product assortment, ramping up retail productivity and shifting the focus to the local customer — while it seeks to deliver cost savings of at least 100 million pounds by 2019.

Today, Burberry’s chief creative and chief executive officer Christopher Bailey announced the new strategy for growth as the company unveiled eroding revenue and profit growth in the 2015-16 fiscal year.

“What we are planning represents real and significant change to what we do and how we do it, with the aim of becoming a stronger, leaner, more efficient business,” a bespectacled Bailey told analysts and investors here.

“Our industry is facing significant challenges — especially with near-term trading — but we believe our targets are stretching but achievable. There is so much to build on,” he continued.

Burberry Fall 2016 Shoes On The Runway Burberry RTW fall ’16 runway collection. Giovanni Giannoni/Fairchild.

Bailey and other Burberry principals laid out the new plan, a back-to-basics approach that will include a 15 to 20 percent reduction in product assortment; a greater focus on key seasonal pieces and sales drivers in-store; more productive retail sales staff, and improved e-commerce operations with the aim of “outperforming” the 200 billion pound, or $289 billion at current exchange, luxury market over the coming years.

Burberry plans to rationalize further its wholesale accounts, and make a concerted effort to convert its digital fans – younger customers and millennials – with more “innovative, creative and exciting” entry price points. At the same time, it plans to cater to a wealthier, more mature local customer with more in-store specialized services.

Retail-wise, the focus will be on key cities where Burberry feels there is the most opportunity for growth.

Burberry shares dipped 3.59 percent to 11.02 pounds, or $15.94, following the presentation to investors and analysts in London.

Earlier in the day, the company announced that profit before tax in fiscal 2015-16 fell 6.5 percent to 416 million pounds, or $628.2 million, while underlying adjusted profit before tax was down 10 percent to 421 million pounds, or $635.7 million.

All yearly dollar figures have been converted at average exchange rates.

The fall in profits comes on the back of an erosion in sales growth as Chinese tourists are choosing to shop at home rather than abroad, and a lack of footfall in the high-margin markets of Hong Kong and Macau. A sharp downturn in Continental European sales, due to a slowdown in tourism and the threat of more terrorist attacks, has also weighed on growth.

Many of the big luxury and fashion brands are struggling to sell in an increasingly uncertain climate, although Burberry has been hit particularly hard because of its exposure to China.

Burberry’s revenue for the full year was down 1 percent underlying at 2.5 billion pounds, or $3.78 billion. Comparable sales were down 1 percent, but rose 3 percent minus the impact of Hong Kong and Macau.

As it moves forward, the company has promised to deliver cost savings of at least 100 million pounds, or $144 million, by 2019, and has increased its full-year dividend 5 percent to 37 pence, or $0.53. It also plans to buy back shares of up to 150 million pounds, or $216 million, in the current year.

The company said it had saved more than 25 million, or $37.8 million, in discretionary costs this year, according to plan.

Although Burberry has seen revenue and profit growth wither over the past year, UBS said earlier this month it expects sales to recover in the second quarter of the current 2016-17 year, with like-for-like growth rising 4 percent.