Burberry Sales Beat Estimates on Recent Boost in U.K. Demand

  • Fashion label says pound’s fall will add 40m pounds to profits
  • Shares rise 7.3 percent in London; job cuts looming, CFO says

Burberry Group Plc, the luxury-goods maker that shook up its top management ranks this week, reported revenue that slightly beat analysts’ estimates as visitors to the U.K. stepped up purchases of rucksacks and trenchcoats in the final weeks of June.

First-quarter retail revenue was little changed at 423 million pounds ($563 million) in the three months through June, London-based Burberry said. Analysts predicted 415 million pounds. Comparable sales fell 3 percent, beating the 5 percent drop expected by analysts. Burberry also said sterling’s plunge would add 40 million pounds to full-year profit. The shares rose as much as 7.3 percent in London.

“The better than expected like-for-like sales development in the first quarter is encouraging and should be taken well by the market,” Zuzanna Pusz, an analyst at Berenberg, said in a note. “The increase in profit guidance on the back of the weaker pound has been already expected.”

Burberry surprised investors this week by announcing that Christopher Bailey will give up his role as chief executive officer and focus on steering creative design after a two-year experiment in handling both roles led to declining profits and slumping shares. The company, which is cutting jobs amid a broader cost purge as it grapples with a global slowdown in luxury spending, is also getting a new chief financial officer.

For Gadfly commentary on Burberry’s new CEO, click here

One bright spot is the weakness of the pound after the U.K.’s vote to leave the EU, which has encouraged foreign tourists to come shop in Britain. The pound’s decline to 30-year lows should boost full-year adjusted profits by about 90 million pounds, the company said, up from its earlier 50-million pound forecast. In an interview Monday with Bloomberg Television, Bailey said the pound’s weakness “helps in certain ways.”

“The U.K. is the stand-out market,” Rogerio Fujimori, an analyst at RBC Capital, said in a note.

Bailey said that incoming CEO Marco Gobbetti supports the strategy he’s followed, which includes narrowing Burberry’s product range, putting a sharper focus on bags and online sales, and targeting annual savings of 100 million pounds within three years. Burberry has entered into consultations with employees on job reductions, CFO Carol Fairweather said on a conference call Wednesday, declining to provide more details. The staffing cuts could run into the hundreds, Sanford C. Bernstein analyst Mario Ortelli estimates.

Tighter Inventory

“We will have to wait a few quarters before the impacts of the new leadership translate in the business,” Exane BNP Paribas analyst Luca Solca said in a note.

The company also said wholesale revenue will fall by more than 10 percent in the first half, more than it previously anticipated, due to tighter inventory controls by U.S. retail customers and subdued demand in other regions. Sales in Hong Kong showed “some improvement,” Burberry said, yet remained mired in decline.

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