Shares in luxury fashion brand Burberry (BRBY) dropped 7% to £14.49 after its first quarter trading update disappointed investors.
Retail sales in the 13 weeks to 27 June were down 45% on a like for like basis to £257 million against £498 million last year, and although the firm said it saw improving trends during the quarter it admitted that ‘it will take time to return to pre-crisis levels with the resumption of overseas travel.’
Burberry also said sales in the second quarter to the end of September would be ‘materially impacted’ due to negligible tourist flows and some stores remaining shut.
Much of Burberry’s sales rely on Asian customers and in particular those who travel internationally, which explains why sales have been so severely impacted.
NOT ALL GLOOM
The firm did say it saw an improvement in sales across all regions and that it expected a ‘promising exit rate for June’ helped by new product launches.
‘Demand for leather goods was particularly strong in Mainland China and Korea, bringing new, younger luxury customers to the brand. We are sharpening our focus on product and making other organisational changes to increase our agility and generate structural savings that we will be able to reinvest into consumer-facing activities.’
In a nod to ethical sourcing, it also said it would relaunch its Burberry Edit clothing line, ‘a curation of styles crafted from sustainable materials.’
CUTTING ITS CLOTH
However, the firm alluded to ‘organisational changes’ which it hopes will deliver significant cost savings. It intends to ‘pool expertise within each unit to enhance our product focus, increase our agility and elevate quality.’
That sounds like code for reducing the size of the workforce on the creative side, added to which it wants to ‘further streamline our office-based functions and improve our retail efficiency in certain geographies outside the UK.’
It expects these changes, which include office closures, to deliver £35 million of cost savings this financial year and £55 million per year thereafter. These savings are on top of its previous £140 million cumulative cost saving scheme which included cancelling the dividend.
Depending on how quickly demand recovers, it intends to reinvest these savings into ‘consumer-facing activities’ such as pop-up stores, ‘visual merchandising’ and events.
EXPERT VIEWS
Chris Beckett, head of research at Quilter Cheviot, called the 45% fall in first quarter sales disappointing, especially compared with other luxury brands, and said today’s update ‘will provoke substantial FY21 earnings downgrades.’
‘Burberry still has its attractions as a unique stock in the UK market longer term, but currently comparisons in an international context are not favourable.’
Industry website Retail Gazette estimates the potential job losses at 500 or 5% of Burberry’s workforce of 10,000, with 150 of those losses likely to be in the UK.
This comes after 1,800 retail job losses at Oasis and Warehouse, 500 job losses at Arcadia, 900 at Cath Kidston and 470 at Mulberry to name just a few.
