Burberry posted full-year results that reflected impact from the coronavirus pandemic, and while there are some positive signs in areas where stores have reopened, the brand sees continued first-quarter challenges with half of its stores still closed.
In a Nutshell: The company said Friday that it had seen strong momentum for the brand, product and sales before the COVID-19 outbreak, and that it was ahead of projections. But by the end of March, 60 percent of retail doors were closed, and comparable sales were down 27 percent for the fourth quarter, versus up 4 percent for the first nine months of the year. Most losses in February were in Asian markets, and by end of March, Burberry also saw disruption across its supply chain, including shuttering its leather-goods center and trench coat factory.
Burberry initiated a comprehensive cost mitigation program, taking into account several possible outcome scenarios and retooled its Yorkshire factory to make personal protective equipment, and sourced surgical masks through its global supply chain for health care workers and charities. It also donated to fund research for a vaccine and to food charities in the U.K. The company said it has a strong balance sheet, with 887 million pounds ($1.08 billion) of cash on hand after a 300 million pound ($365.5 million) drawdown from its revolving credit facility.
Over the past two years, Burberry has established a new platform from which to leverage the brand through a new product assortment, better aligned distribution channels and improved brand recognition. It increased the availability of new product in its mainline stores to 85 percent by the end of the fourth quarter, up from just 10 percent to 15 percent in April 2019, the start of full year 2020’s first quarter. During the year, new flagship stores were opened in Beijing, Shanghai and at Ginza, in Tokyo. Currently, 64 stores are now part of its refresh program. The company exited 23 smaller, nonstrategic stores that previously had been earmarked for closure.
Burberry has also moved to leverage its digital platform to connect with customers, bringing products to clients through remote selling and roadshows, live streaming events from stores and immersive experiences.
Net Sales: Revenue for the full year ended March 28 fell 3.2 percent to 2.63 billion pounds ($3.21 billion) from 2.72 billion pounds ($3.31 billion), while same-store sales fell 3 percent for the year. Operating profit was down 57 percent to 189 million pounds ($230 million) due primarily to write-downs resulting from the impact of COVID-19. On an adjusted basis, operating profit was down 8 percent to 404 million pounds ($492.2 million).
Following the reopening of stores in Mainland China and South Korea, sales are already ahead of the prior year, and “continuing to show an improving trend,” Burberry said.
Earnings: Profit for the year was down 64 percent to 122 million pounds ($148.6 million) from 339 million pounds ($413.0 million) a year ago.
Burberry said it won’t be providing guidance for fiscal year 2021 due to the difficulty in predicting the course of the pandemic and the longer lasting economic consequences. For the first quarter ending in June, the company said it expects to still be impacted by store closures since 50 percent of its locations remain closed.
“We are leveraging our digital platforms to forge stronger connections with our customers and have mitigation plans to conserve cash and reduce operating costs, whilst retaining flexibility to respond rapidly and optimize revenues in markets as the start to recover,” Burberry said, adding that it has tightened its inventory management and shortened supply chain lead times.
CEO’s Take: “We have a strong balance sheet and liquidity, with space for investment when markets recover. We have found new ways to strengthen our connection with consumers, drawing on our digital leadership….It will take time to heal, but we are encouraged by our strong rebound in some parts of Asia and are well-prepared to navigate through this period,” Burberry CEO Marco Gobbetti, said. “Now, more than ever, our strategy to secure our position in luxury fashion is key.”