Burberry is in a tough spot. The £7 billion British fashion group eked out a meagre 1 per cent growth in sales last quarter, worse than rivals.
A chaotic Brexit is also a growing concern. The dismal performance makes the response to the first collection from new designer Riccardo Tisci all the more critical.
Burberry’s results for the 13 weeks to December 29 look unimpressive. The group’s comparable same-store revenue growth pales against Hugo Boss’s 4 per cent in the final quarter of 2018.
For Italy’s Brunello Cucinelli, like-for-like revenue grew 3.5 per cent in 2018.
Softer sales in places like Hong Kong and Japan, and the impact of “yellow vest” riots in France, were partly to blame.
But the worst could be yet to come for Britain’s biggest luxury group. Burberry Chief Financial Officer Julie Brown did not hide her concerns about the threat of a no-deal Brexit.
She reckons customs duties between the UK and mainland Europe could cost in the “low 10s millions of pounds”, a manageable hit in light of next year’s expected EBIT of £467 million, as per Refinitiv data.
The bigger headache is the delays that new customs duties would mean for goods that Burberry makes in the UK and ships overseas, and vice versa. This would force Burberry to keep more inventory, and push up costs.
There is a silver lining. Designer Tisci’s debut collection has received rave reviews, leading to a doubling of orders from wholesale buyers in the United States — which represent 5 per cent of global sales — and a “significant” order increase in the cluster of Europe, Africa, India and the Middle East, a more important region for Burberry.
The key question is whether the wholesale success will translate into purchases in stores. Wholesale revenues made up just 17 per cent of Burberry’s total business in the last fiscal year.
Encouragingly, Tisci’s arrival seems to also have improved Burberry’s image in the social media sphere. Followers on its Instagram and WeChat accounts rose by 1 million in the last quarter.
Yet, the collection will start to hit stores in February, and the full effect will only be visible months later.
Until then, investors must brace for more immediate headwinds. — Reuters
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