Burberry Beats First-Half Profits Forecasts, Announces New Growth Strategy

Burberry’s share price rose 1% in risk-off trading on Thursday following the release of better-than-expected trading numbers.

Thanks to favourable exchange movements, revenues at the FTSE 100 firm leapt 11% year on year to £1.35 billion between April and September. Stripping out the impact of the stronger US dollar sales rose 5%.

This sales jump came despite ongoing Covid-19 lockdowns in Mainland China. Excluding trading in this key Asian market Burberry’s sales rose 18% year on year.

Adjusted operating profit jumped 21% in the first half, to £238 million. This was helped by a 150 basis point boost to adjusted operating margins which rose to 17.7%.

Leather Sales Soar

Demand for Burberry’s leather goods was especially strong in the six months to September. The business said that “this was driven by handbags with the Lola now our best seller and helped by the introduction of the Frances shape for AW22.”

Leather sales rose 11% between in the first half, with growth speeding up to 15% in the second quarter.

Comparable store sales at Burberry rose 5% and improved strongly as the first half progressed. Turnover growth of 1% in the April to June quarter increased to 11% in the following three months.

Wholesale sales increased 6% at actual exchange rates and 1% at constant currencies.

New Strategy

Burberry also announced a change in strategy on Thursday. It said that planned changes are designed to “refocus on Britishness and strengthen our connection with British design, craft and culture.”

The company is seeking to double sales of its leather goods, shoes and women’s ready to wear products under the new plan. It is also seeking to grow outerwear sales by roughly 50% in the medium term and accessories revenues by the same percentage over the long term.

Furthermore, Burberry plans to double e-commerce sales in the medium term. It’s also aiming to convert all of its stores to its new concept by the end of financial 2026.

£5 Billion Revenue TargetTGT

Chief executive Jonathan Akeroyd commented today that “I am confident in our ability to deliver our medium-term targets and realise our potential as the modern British luxury brand.” He added that the company is aiming to deliver £5 billion in annual revenue in the long term.

Over the medium term Burberry has plans to grow sales to £4 billion at constant exchange rates, it also announced today.

In October the company replaced Riccardo Tisci as chief creative officer with Daniel Lee. Tisci had held the role for the last five years.

Guidance Maintained

Burberry said that it was maintaining guidance through to the end of 2024, though it added that it is “mindful of the challenging macro environment and its potential impact on trading, particularly Covid-19 related disruption in Mainland China and recessionary risks in Europe and the Americas.”

Sophie Lund-Yates, analyst at Hargreaves Lansdown, noted that Burberry’s first half performance “has been turbo charged by American tourists spending big in Europe as they took advantage of the stronger dollar.”

However, she noted that some turbulence could be coming the company’s way.

“Luxury names tend to be more insulated than other retailers in the face of economic downturns, Lund-Yates said. But she added that “[Burberry] still feels marginally more accessible than some other ultra-high-end brands” and so “a higher proportion of customers drop off if recessions run too long and too deep.”