Burberry has swung back to an annual profit but cautioned the Iran war could affect consumer spending. The luxury fashion firm reported pre-tax profits of £49 million for the year to March 28 against losses of £66 million the previous year, with results boosted by a better-than-expected 5% jump in same-store sales over its final quarter and an overhaul to cut £100 million in annual costs.
Turnaround Strategy Yields Results
Burberry’s bet on Gen Z shoppers and a move to revive its British heritage have paid off. The company achieved annual cost cuts of £80 million in the past financial year, with the remainder due over the year ahead. Its “Burberry Forward” strategy has involved reviving the brand’s heritage and focusing on bestselling items, such as its trench coats, scarves, and distinctive check pattern, after efforts to modernise failed to deliver a boost.
Geopolitical Concerns
Burberry said it was “mindful of the uncertain geopolitical and macro-economic environment and its potential impact on consumer confidence.” The Middle East accounts for around 2% of annual group sales, with disruption from the conflict contributing to a 2% drop in fourth quarter sales over the wider Europe, Middle East, India and Africa division. The group said it was not yet seeing the impact extend outside the Middle East.
China Bounce-Back
Founded in England in 1856, Burberry has come under pressure in recent years from weaker spending across the luxury sector and its key Chinese market. But its latest results showed a bounce-back in China, with sales surging 10% in its final quarter, helping drive growth of 4% across the year as a whole in the region.
Leadership Change
The results came as it also announced that chairman Gerry Murphy would retire in November as he nears the end of a nine-year tenure at the helm of the board. He will be replaced by William Jackson, the founder and former chief executive and chairman of Bridgepoint Group.
Market Reaction
Despite the upbeat figures, Burberry shares fell 2% in morning trading on Thursday. Richard Hunter, head of markets at Interactive Investor, said: “The shares are ahead by 31% since the appointment of the new chief executive. However, there remains something of a mountain to climb, such that investors are ready to accept but are not yet fully convinced of a sustained recovery, as evidenced by a surprisingly downbeat reaction to the numbers.”
Joshua Schulman, Burberry’s chief executive, said: “This financial year marks a meaningful inflection point for Burberry. We’ve returned to profitable comparable sales growth, with a strong fourth quarter driven by momentum in Greater China and Americas. Our strategy is working and there are clear opportunities for further growth.”
