Burberry's Gobbetti Gets Boost as China Rebound Lifts Sales

  • Strength in mainland China bolsters sales growth in Asia
  • U.K. leads gains in Europe while Americas region was weak

Burberry said results were boosted by strength in mainland China, producing mid-single-digit percentage growth in the Asia-Pacific region.

Photographer: Xaume Olleros/Bloomberg

Burberry Group Plc gave a boost to new Chief Executive Officer Marco Gobbetti only a week after he took the helm, saying rebounding sales in China are more than compensating for continued weakness in the U.S.

First-quarter retail revenue rose 3 percent on an underlying basis, to 478 million pounds ($613 million), beating analysts’ estimates of 471 million pounds, the company said in a statement Wednesday. The shares rose the most in about two months.

Marco Gobbetti

Source: Burberry Group Plc

Results were lifted by cost cutting and by strength in mainland China, where luxury-goods sales are bouncing back after a multiyear slump. Sales in the Asia-Pacific region rose by a mid-single-digit percentage. The Americas remained weak, underlining the challenge Gobbetti faces in putting the trenchcoat maker back on a path to sustainable growth.

The former head of LVMH’s Celine brand took over as Burberry CEO this month from Christopher Bailey, who continues to serve as the trenchcoat maker’s creative chief. In preparation for the handover, the company has been streamlining its brand portfolio and U.S. retail presence in an effort to boost profitability.

“Cost savings and enhanced cash returns to shareholders provide some support for the stock,” RBC Capital Markets analyst Rogerio Fujimori said in a note, but Burberry “is facing significant headwinds in the U.S. department-store channel.”

The shares gained as much as 5.8 percent in London, and were up 3.1 percent at 9:35 a.m.

The sales report comes a day before what may be a tense annual general meeting as some investors object to Burberry’s executive pay. Royal London Asset Management this week said it would heed calls from investor advisory groups to vote against the remuneration report.

The company on Wednesday left its full-year earnings outlook unchanged. It said currency swings will reduce earnings by about 25 million pounds, based on current exchange rates, which is less than the 30 million pounds forecast in April.

“Gobbetti will take greater control around brand distribution with further cleaning of the wholesale channel,” wrote John Guy, an analyst at MainFirst Bank AG. “This is a similar strategy when he ran LVMH brands, such as Celine. He would sacrifice short-term sales in order to protect/elevate the brand and drive improved productivity over the long-term.”

In other highlights, Burberry said:

  • Comparable sales up 4 percent, ahead of estimates of 2.5 percent
  • The U.K., where luxury sales have been lifted by tourists benefiting from a weaker pound in the wake of the vote to leave the European Union, boosted results in Europe
  • U.K. sales to foreign customers slowed during the quarter, while domestic demand remained strong, Chief Financial Officer Julie Brown said on a conference call
  • Fashion led growth, with leather-goods showing mid-teens percentage gains
  • Total underlying wholesale revenue to be broadly flat in first half, and down excluding beauty unit in second half, due to brand control

— With assistance by Corinne Gretler

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