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Burberry Banks on Chinese Shoppers as Protests Halve Hong Kong Sales

Strong response from consumers for Riccardo Tisci’s new collections and a focus on inspiring Chinese shoppers helped drive third-quarter results at Burberry Group plc.

In a Nutshell: New product from Tisci delivered double-digit growth compared to the prior year, representing approximately 75 percent of Burberry’s full-price retail offerings. In its push to attract Chinese consumers, Burberry will take its Autumn-Winter 2020 runway show to Shanghai this April. The company disclosed in November that it plans to partner with Tencent to develop its first social retail store, which is slated to open in Shenzhen in the first half of 2021.

To further inspire the Chinese consumer, the company launched its Festive campaign and Lunar New Year activities, both of which saw “excellent response,” Burberry said. The company also launch of its first immersive online game B-Bounce and its recent extension, “Ratberry,” for the Lunar New Year campaign. “These activities underpinned double-digit growth year-on-year in followers and engagement rates across both Instagram and WeChat,” Burberry said.

“Fiscal year 2020 is the second year of our plan to transform Burberry. Our focus in this phase is on investing to elevate our product offering, re-energize our brand and align distribution to our new luxury positioning. Against this backdrop, we made good progress in the quarter as we increased the availability of new products and continued to evolve our retail and wholesale networks,” the company said.

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Net Sales: For the quarter ended Dec. 28, retail revenue rose 1.1 percent, or 2 percent at constant exchange, to 719 million pounds ($944.0 million) from 711 million pounds ($933.5 million) in the year-ago quarter. Comparable store sales rose 3 percent, led by full-price sales that were partially offset by lower levels of markdown merchandise and continued disruption in Hong Kong.

By region, Asia Pacific grew by a single-digit percentage, driven by Mainland China up mid-teens. Sales in Hong Kong were halved. In Europe, Middle East, India and Africa, sales rose by a high-single-digit percentage, buoyed by tourist spend, particularly in Continental Europe. The Americas are stable, with the U.S. up by a low-single-digit percentage, partially offset by Canada.

By category, apparel sales saw continued growth in the quarter, while accessories benefited from a fuller leather goods offering, Burberry said.

Earnings: The company didn’t provide an earnings update in its sales report but did raise Fiscal Year 2020 guidance, with total revenue expected to grow by a low-single-digit percentage at constant exchange. The prior guidance of “broadly stable” was essentially an expectation of flat revenue growth.

In the quarter, Burberry continued with store refreshes at 60 locations to showcase its updated creative vision and closed 16 locations.

CEO’s Take: “This was another good quarter as new collections delivered strong growth and we continued to shift consumer perceptions of our brand and align the network to our new creative vision,” CEO Marco Gobbetti said. “While mindful of the uncertain macro-economic environment, we remain confident in our strategy and the outlook for Fiscal Year 2020,” .