Burberry delivers a strong financial performance with revenue accelerating in Q4

Burberry Group plc (LON:BRBY) has announced its preliminary results for the 52 weeks ended 1 April 2023.

“I am very pleased with what we have achieved this year. We have delivered a strong financial performance, supported by good progress in our core leather goods and outerwear categories, with revenue accelerating in the fourth quarter as growth rebounded in Mainland China. Having appointed Daniel Lee as our new Chief Creative Officer, we have refocused our brand aesthetic and brought his new creative vision to life with a campaign and runway show that have been very well received. At the same time, we have reorganised our supply chain, merchandising and digital teams under new leaders to drive our strategy forward. While the external environment remains uncertain, I am confident we can achieve our FY24 and medium-term targets as we focus on executing our plan to realise Burberry’s potential as the modern British luxury brand.”
– Jonathan Akeroyd, Chief Executive Officer

·    FY23 revenue advanced 5% at CER and 10% on a reported basis; comparable store sales increased 7%

·    Adjusted operating profit +8% at CER and +21% reported with margins 19.0% and 20.5% respectively

·    Reported operating profit +21% with margin 21.2%

·    Q4 comparable store sales accelerated to 16% as growth rebounded in Mainland China +13%

o  Group ex Mainland China +17%, EMEIA +27%, Asia Pacific +19%, Americas -7%

·    Strong performance across core outerwear and leather goods categories

o  Leather goods comparable store sales up 12% in FY23 and up 15% in Q4

o  Outerwear comparable store sales up 7% in FY23 and 30% in Q4

·    Excellent response to new brand aesthetic and Daniel Lee’s first campaign and debut runway show

·    Reorganised supply chain, merchandising and digital operations under new leaders to drive strategy, and recruited Kate Ferry as our new CFO

·    Agreed to acquire a business from an Italian supplier to strengthen technical outerwear capability

·    Refurbished/opened 60 stores; c.30% of the full price network updated; with a further 7 stores in April

·    Continued to make progress across our social and environmental agenda, including year-on-year reductions in scope 1, 2 and 3 carbon emissions

·    Strong cash conversion at 87% – proposed dividend increased 30%. Planned £400m share buyback to complete in FY24, in line with capital allocation policy

Guidance

·        Maintaining FY24 and medium-term targets while mindful of macroeconomic and geopolitical environment

FY23 is a 52-week year. The comparative period is 53 weeks to 2 April 2022. We have provided CER percentage changes on a 52-week basis while absolute figures are on a reported basis compared with the 53^rd week unless otherwise stated. FY24 is a 52-week year.

All metrics and commentary in the Business and Financial Review exclude adjusting items unless stated otherwise.

The following alternative performance measures are presented in this announcement: CER, adjusted profit measures, comparable sales, free cash flow, cash conversion, adjusted EBITDA and net debt. The definitions of these alternative performance measures are in the Appendix on page 13.

Certain financial data within this announcement have been rounded. Growth rates and ratios are calculated on unrounded numbers.

·        There will be a virtual presentation for investors and analysts today at 9.30am (UK time) that can be viewed live on the Burberry website www.burberryplc.com and can also be accessed live via a listen only dial-in facility, click here to register.  

·        The supporting slides and an indexed replay will be available on the website later in the day

·        Burberry will issue its First Quarter Trading Update on 14 July 2023

·        The AGM will be held on 12 July 2023

BUSINESS REVIEW

In November 2022, we set out the next phase of our strategy to realise Burberry’s potential as the modern British luxury brand with a medium-term target to grow sales to £4bn at CER* and a longer-term ambition to reach £5bn in revenue. The key elements of our plan to drive growth and acceleration are to:

·      Harness the power of the brand

·      Bring all product categories to full potential

·      Strengthen distribution

while continuing to simplify and streamline key processes, deliver on our bold sustainability ambitions, ensure our people are supported and inspired to deliver, and positively impact our communities.

Since then, we have made good progress on executing our plan while delivering a strong financial performance supported by growth in our core leather goods and outerwear product categories and revenue growth accelerating in the fourth quarter as sales rebounded in Mainland China and South Asia Pacific tourist destinations.

In February, we launched the first creative expression of our house values under Daniel Lee, resetting our visual identity with a campaign that featured talent including Skepta, Georgia May Jagger and Son Heung-Min. We followed this with Daniel’s debut runway show, set in a custom-built tent in Kennington Park, London and featuring a new aesthetic across all key product categories. The campaign and show were extremely well received by press, generating over 4,000 pieces of global media coverage with an estimated reach of c.4bn.

Our rainwear offer was boosted by the positive reception to Daniel’s first campaign, along with VIP dressing at the runway show, both celebrating the iconic Burberry trench coat. As a result, we saw very strong acceleration in heritage rainwear, with comparable store sales doubling in the quarter. Leather goods outperformed in the year as we continued to see strength in women’s bags – especially in the Lola and Frances shapes as well as the launch of the vintage Burberry Check line. We are excited to build on this with Daniel’s new offer launched at the show, which will be in store from September.

We refurbished or opened 60 stores in the year with a further 7 completed in April. We now have around 30% of our full price stores updated with around 40% in Asia. We aim to update over 50% of stores by FY24 year end with plans on track to complete the roll out of the portfolio by FY26. Financials of the updated stores continue to show both store productivity and AUR up mid-teens percentage against equivalent stores.

We made changes to our operating model to strengthen the alignment between our commercial offering and our new creative vision and hired leaders in new roles to drive the delivery of our medium-term targets. We integrated the responsibility for global e-commerce, digital product and analytics as well as a newly formed innovation function under a new Chief Digital, Customer and Innovation Officer. We formalised the link between planning and merchandising under a new Chief Merchandising Officer with additional responsibility over global planning and pricing. We also brought our supply chain and product development teams together under a new Chief Supply Chain and Industrial Officer to drive greater connectivity, while ensuring end-to-end ownership for delivery. In addition, we appointed Kate Ferry as our new Chief Financial Officer who will join in July.

As part of our plan to bring all product categories to full potential, in March, we entered into an agreement to acquire a business from longstanding Italian supplier, Pattern SpA, which is anticipated to complete in FY24. With this investment, we will secure capacity, build technical outerwear capability, and further embed sustainability into our value chain.

We also continued to progress our decarbonisation agenda, achieving a 9% reduction in our scope 1 and 2 carbon emissions and an 11% year-on-year reduction in our scope 3 emissions versus FY22.

We are delighted to have started the new financial year with the appointment in April of award-winning Chinese actor Chen Kun as our latest ambassador. In addition to his successful acting career, Chen Kun is dedicated to promoting arts and culture as well as using his influence for philanthropy, and we look forward to collaborating with him for future brand events and campaigns.

*Base year FY22 exchange rates

GUIDANCE

We maintain our guidance of:

·      High single-digit revenue CAGR from FY20 base and around 20% adjusted operating profit margin at CER for FY24

·      £4bn sales at FY22 CER in the medium-term

·      Based on 21 April 2023 spot rates we expect a currency headwind of c.£70m on revenue and c.£40m on adjusted operating profit in FY24