Luxury leader Burberry's (BRBY) full-year results confirm a disappointing year to March, adjusted profit before tax down 10% to £421 million on sales off 1% at £2.5 billion. Chief Creative and CEO Christopher Bailey expects 'the challenging environment for the luxury sector to continue in the near term', though there's positive news in the form of an ambitious three year plan to reinvigorate top-line growth and deliver 'at least £100 million' of annualised cost savings by 2019.
Click here to read the preliminary results from Burberry, the retailer and wholesaler famed for its Equestrian Knight Device and Burberry Check trademarks, which are in-line with the downgraded guidance given in its latest profit warning (14 Apr).
A strong British brand with over 40 million followers on social media, Burberry has been hard-hit by the well-documented slowdown in the number of Chinese tourists visiting its European stores, by weak demand in Hong Kong and Macau – like-for-like sales were actually up excluding these two markets – as well as some uneven demand in the US.
Since 2010, the cyclical personal luxury goods market has grown by about 7% a year on average, largely powered by the travelling Chinese shopper, though Burberry points out the market is expected to grow by a much more muted low single-digit percentage per annum rate over the coming five years.
Given this testing backcloth, the trench coats-to-cashmere scarves purveyor now expects adjusted profit before tax for the year to next March 'to be towards the bottom of the range of analysts' expectations', set at £415 million before today, as well as 'more second-half weighted' than in 2016.
This news triggers a 2.9% share price reverse to £11.10, taking some of the shine off Bailey's bold plan to overhaul Burberry's retail operations and simplify its product range. Burberry has already successfully relaunched it heritage trench coat and cashmere scarves business and says 'the next area of focus is bags, where we are under-penetrated compared to our peers'.
Burberry is having to weather a luxury market storm, though its strong balance sheet is providing much-needed ballast. A £108 million year-on-year increase in net cash to £660 million supports a 5% rise in the full-year dividend to 37p and the company also makes further commitments to return cash to shareholders; Burberry is guiding towards a March 2017 dividend 'at least in line with FY 2016' as well as a share buyback of up to £150 million starting in the current financial year.