The luxury rebound is gaining traction, with the latest proof coming from Burberry, where sales outstripped market expectations in the crucial Christmas trading period.
In the third quarter ended Dec. 28, comparable store sales dipped 4 percent compared with analysts’ expectations of a 12 percent drop. The company, under the guidance of new chief executive officer Joshua Schulman, was also able to stem the double-digit sales declines that marred the first half of the year.
In a trading update issued Friday, the company guided toward a stronger second half, with a better set of results expected to offset the first-half adjusted operating loss — despite the uncertain macroeconomic environment.
As reported, Burberry posted a first-half operating loss of 53 million pounds on the back of a 22 percent decline in revenue to 1.09 billion pounds. In the first six months, comparable store sales were down 20 percent, with double-digit declines across all regions.
Citi reacted to Friday’s numbers with a flash report titled “Here Comes the Sun,” while RBC Capital Markets described the Christmas trading as “strong.” The shares surged more than 15 percent in morning trading, and closed up nearly 10 percent on Friday.
Burberry released its upbeat numbers a week after Richemont surprised the markets with a 10 percent surge in revenue during the Christmas trading quarter. The bump sent share prices soaring in the hope of a luxury rebound.
Burberry’s numbers weren’t nearly as good as Richemont’s, but they were not as bad as expected.
In the three-month run-up to Christmas, Burberry reported a 7 percent decline in third-quarter retail revenue to 659 million pounds, helped by a 4 percent uptick in the Americas region and the popularity of outerwear and scarves.
Comparable store sales in Asia-Pacific were down 9 percent, while in mainland China they fell 7 percent, compared with a drop of 27 percent in the previous quarter. The recovery indicates that Schulman’s product-focused turnaround has begun to take hold, and that Chinese consumers may be ready to welcome luxury into their lives once again.
Globally, the mainland Chinese customer was flat versus last year, although Chinese travelers contributed to the 4 percent increase in Japan in the quarter. Within Asia-Pacific, South Korea was down 12 percent, while South Asia-Pacific dropped 19 percent.
Sales in the EMEIA region, which comprises Europe, the Middle East and Africa, dipped 2 percent and the region remains “choppy,” according to Burberry’s chief financial officer Kate Ferry, with the U.K. and the Middle East underperforming in the three-month period.
Burberry’s new East 57th Street store, which has been having a “halo” effect on sales in the U.S.
Schulman said the company has been moving “at pace” toward growth.
“We are encouraged by the response to our ‘It’s Always Burberry Weather’ outerwear campaign and ‘Wrapped in Burberry’ festive campaign. These activations resonated with a broad range of luxury customers leading to an improvement in brand desirability and strength in outerwear and scarves,” Schulman said.
“The acceleration of our core categories reinforces our belief that Burberry has the most opportunity where we have the most authenticity, and that our strategic plan will deliver sustainable, profitable growth over time. However, we recognize that it is still very early in our transformation and there remains much to do,” he added.
Schulman joined Burberry last summer, charged with restoring the company to growth and profitability in what has been a difficult climate for luxury goods.
Burberry attributed the uptick in sales to a number of factors, including a focus on scarves, outerwear and other core products (rather than seasonal runway fashion) and “recognizable brand signifiers.”
On a conference call, Schulman said that scarves and capes were flying out of stores, with some styles selling out quickly.
He has been pursuing a “good, better and best” luxury pricing strategy, and said that all price tiers have been popular, from entry-price scarves priced at 420 euros to more expensive ones at 690 euros, and capes and larger styles at 2,500 euros.
Zhang Jingyi in Burberry’s first outerwear campaign under CEO Josh Schulman.
Schulman said all the scarves sold at full price throughout the season.
During the same call, Ferry dismissed suggestions that Burberry’s improved performance was due to discounting old stock. She said seasonal discounting had contributed a “low-single-digit benefit” to the better-than-expected sales figure.
Ferry added that Burberry was “encouraged” by the degree of full-price sales growth in the quarter and was expecting inventory to be flat year-on-year in March when Burberry’s fiscal year ends.
The company also said that enhanced visual merchandising in stores and the reintroduction of mannequins on the shop floor; cross-category styling ,and styling innovations on the Burberry website also helped to tempt customers.
“In December, we saw new customer growth for the first time in more than two years,” said Schulman, adding that “brand desirability” was also on the rise. He said the latter is a key indicator of future sales.
Schulman said he was pleased that Burberry’s creative and commercial teams are now working under one roof at the newly refurbished Horseferry House. “The teams are now physically closer together, and there’s better collaboration. We are reigniting the creative and commercial alchemy” of the brand, he said.
Tyra Banks at the opening of Burberry’s 57th Street store last October.
Schulman commented on robust growth in the U.S.
Burberry’s new 57th Street flagship, which opened in October, has been performing well, he said, and has had a “halo effect” on sales in the region throughout the third quarter.
U.S. department stores have also been eager to align with Burberry. “They are rooting for our comeback, and want to be alongside us in all that we do,” said Schulman, who spent five years as president of Bergdorf Goodman earlier in his career.
Burberry may be on its way to recovery, but in the words of James Grzinic, equity analyst at Jefferies, the results and second-half guidance “are a small step in a long journey.”
The same could be said of the wider recovery in luxury demand. As reported, analysts remain divided about luxury’s future after the uptick in revenue at Richemont.
Bernstein’s Luca Solca believes the “cyclical demand environment” has improved sequentially nearly everywhere, and that all nationalities are now spending more year-on-year than in the third calendar quarter of 2024 “even if the Chinese stay on the back foot.”
He believes that the tide of changes “will lift all boats.”
Barclays and RBC argue, however, that it was Richemont’s special positioning that fueled growth in the quarter, and suggested that investors shouldn’t necessarily get their hopes up regarding other luxury groups’ performance in the Christmas period.
