Luxury goods leader Burberry’s (BRBY) shares bounce 2.3% or 42p higher to £18.46 as the bags, cashmere scarves and trench coats designer beats forecasts with a 2% rise in annual adjusted operating profit to £467m.
This reflects a positive retail performance in a pivotal year to March, new boss Marco Gobbetti’s plan to ‘re-energise’ the brand showing early promise, cost savings coming through ahead of plan and Burberry also flagging improved profitability from its beauty lines.
Horseferry Road-headquartered Burberry, led by CEO Gobbetti and which recently appointed former Givenchy star Riccardo Tisci as its new chief creative officer, reports annual retail like-for-like store growth of 3%.
Encouragingly, this is up from the muted 1% growth generated in the previous year and supported by top line progress in China and a second half return to growth in the US.
Back in November, Burberry’s shares sold off as Gobbetti cautioned that he would be investing time, effort and profits into shifting Burberry ever more upmarket, repositioning the FTSE 100-listed group as one of the world’s most aspirational brands.
Gobbetti has made good early progress in positioning the brand, famed for its equestrian knight logo and Burberry check trademarks, ‘in the most rewarding and enduring part of the luxury industry’.
‘In a year of transition, we are pleased with our performance as we began to execute our strategy,’ purrs Gobbetti. ‘While the task of transforming Burberry is still before us, the first steps we implemented to re-energise our brand are showing promising early signs. With Riccardo Tisci now on board and a strong leadership team in place, we are excited about the year ahead and remain fully focused on our strategy to deliver long-term sustainable value.'
Burberry has inked a deal to acquire a luxury leather goods business from longstanding Italian partner, CF&P, as it seeks to boost its handbag business, part of the drive to take the brand more upmarket.
‘This will create a centre of excellence for our leather goods, covering all activities from prototyping, product innovation and engineering to the coordination of production. It will give us greater control over quality, cost, delivery and sustainability in this strategically important category,’ reads today’s statement.
CASH FLOW BEAUTY
There’s also investor relief a Burberry maintains 2019 and 2020 guidance of ‘broadly stable revenue and operating profit margin’ and raises the dividend by 6% to 41.3p. Burberry’s cash flow was exceptionally strong last year, boosted by a one-off inflow linked to the switch of Burberry Beauty from a wholesale to a licencing model.
Boasting the best part of £900m net cash on the balance sheet, Burberry today announces a new £150m share buyback programme which it will complete in the current financial year to March.
Less enthused by the story is Ken Odeluga, Market Analyst at City Index, who comments:
‘Burberry has given investors further reasons to stay patient, though a 2% rise in full year profit provides little evidence that CEO Marco Gobbetti’s suitably expensive strategy is gaining traction. To be sure, a small outperformance relative to expectations is nice to have. It could even be an encouraging signal from the plan Gobbetti embarked upon in November.
'Whilst acknowledging that the “task of transforming Burberry is still before us”, he appears satisfied with the group’s progress thus far. Still, it is early days. Burberry’s full-year adjusted operating profit of £467m at constant currency rates is an advancement against the £459m it made in the 2017. But with gross margin creeping 50 basis points lower and £44m in new cost savings, it’s clear the £8m profit rise owed more to discipline than growth.
'Indeed, Gobbetti’s clear-eyed view is that there may not be much growth to speak of before 2021.'