Industry reacts to Burberry results: "There are no silver bullets"
Burberry revealed a 5% increase in revenue to £756 million in its results for the third quarter ending 31 December 2022, despite pandemic-related challenges in Mainland China.
Comparable store sales grew 1%, reflecting “significant disruption” from both lockdowns and the reopening of Mainland China. Outside of Mainland China, comparable stores sales increased 11% with EMEIA, Japan, South Korea and South Asia Pacific all showing double-digit growth.
By product, accessories saw double-digit comparable sales outside of Mainland China. This was supported by a "dedicated campaign" and a 360-degree programme of commercial activations for the festive period. Men’s accessories reported “strong” double-digit comparable sales and outerwear saw high-single digit comparable growth.
Looking ahead, the group expects an estimated £160 million currency tailwind on revenue and £70 million on adjusted operating profit in the fiscal year 2023, based on foreign exchange rates recorded on 30 December 2022.
TheIndustry.fashion has curated commentary from a range of experts and analysts to gauge their reaction and to gain insight into how the future looks for the luxury fashion brand.
Jonathan Akeroyd, CEO of Burberry:
“Overall, we are pleased with our performance in the third quarter as double-digit revenue growth outside of Mainland China offset the impact of COVID-19-related disruption there.
"Europe in particular continued to perform well, driven by strong trading over the festive period, and leather goods delivered another quarter of double-digit growth globally.
"We remain confident in our ability to reach our medium-term targets, despite the current macro-economic environment. We are focused on executing our plan to realise Burberry’s potential as the modern British luxury brand and we look forward to unveiling Daniel Lee’s debut collection for Burberry on our return to London Fashion Week next month.”
Charlie Huggins, Head of Equities at Wealth Club:
“COVID-19 related disruptions have impacted Burberry's performance in China this quarter, with sales falling by 23%. But elsewhere, performance is more encouraging. As pandemic restrictions in China ease, sales should improve.
"Looking to the medium to longer term, Burberry's success will hinge on the success of new CEO, Jonathan Akeroyd's strategy to turn around the struggling luxury fashion house.
"The group’s performance has been disappointing for many years. Growth and margins have significantly lagged that of European rivals, and operational execution has often left a lot to be desired.
"It's not going to be a quick or easy fix. Elevating a luxury brand like Burberry and creating new products that resonate with consumers takes time, and there are no silver bullets. One thing's for sure - Burberry's operational execution will have to improve if it is to close the gap on its European rivals.”
Prof Howard Yu, Institute for Management Development:
“The reality is that during 2022, the majority of the growth in the luxury industry was driven by millennials and Gen Z, so it is definitely true that a lot of this growth came from kids at home using disposable income to buy luxury goods.
“In order to win, a brand has to be future ready. That means that Burberry or LVMH have to deliver strong growth in terms of profitability at the same time as investing in digital in order to build the next growth engine.
“For a long time Burberry did trend behind LVMH and Kering. It goes back to a long history of overexposure, it took them a long time to recover. But we also see that they’re trying to reboot some of the deep capability. They have a new Chief Digital Officer, and a new Chief Merchandising Officer, so it’s an exciting time.
“If there’s one industry, beyond healthcare, which is recession-proof, it’s luxury goods. When you’re targeting the highest echelon of society, they are the population who is most likely to be able to weather the economic storm. But they also need to target the mass segment, creating a perceived prestige while simultaneously generating cash from the mainstream.”
Richard Hunter, Head of Markets at Interactive Investor:
“Despite an awkward economic backdrop, Burberry has ploughed on with the innovative campaigns which are making the brand increasingly relevant to a new generation of customers.
"In some ways, the higher end nature of the group’s products are aimed at customers who to a large extent are largely shielded from inflationary or even recessionary concerns. In addition, the strength of the US dollar has not only attracted more tourist spending in Europe from Americans, but has the added advantage of boosting earnings which become more valuable when repatriated.
"Indeed, Burberry has estimated a currency tailwind of £160m to revenues for the full-year, and a £70m boost to adjusted operating profit. Comparable sales in the European region grew by 19% in the quarter and for the group as a whole, excluding Mainland China, by 11%.
"The relaxation of the zero tolerance COVID-19 policy in China has yet to wash through to the numbers, and this could be an area in which Burberry gains significant advantage."