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Burberry Minimizes Markdowns to Foster Full-Price Sales

Burberry said full-price sales climbed in the fourth quarter, with consumers in Mainland China, Korea and the U.S driving a recovery.

In a Nutshell: The British luxury icon said fiscal year 2021 marked the third year of a transformation plan bolstering its position in the premium sector. Despite the pandemic, Burberry said it has completed the objectives for the first phase of its strategy.

The company said it continues to reinforce its luxury positioning through “emotive campaigns and activations and adopted a highly localized approach in every market.” Burberry said leather goods and outerwear, two strategic pillars, returned to mid and high single digit growth, respectively. And, in January, it launched Future Archive, a capsule reinterpreting outwear classics from the Burberry archive. “By successfully driving the performance of our strategic pillars, we have supported high single digit growth in prices—further demonstrating the strength of our brand,” it said.

To navigate Brexit’s aftermath, Burberry continues to adapt to the EU-UK Trade and Cooperation Agreement to “ensure minimal disruption to our operations and customers” and has “initiated a number of actions to mitigate duty costs including collating evidence in support of claiming preferential duty rates, streamlining product flows to minimize movements of goods between the U.K. and EU, and establishing a customs warehouse.”

“In spite of COVID-19, we achieved our objectives for the period and delivered a strong set of results in [fiscal year 2021], ending the year with good full-price sales growth,” said CEO Marco Gobbetti.

Burberry plans to drive revenue by building brand advocacy and community, focusing on outerwear and leather goods, unveiling a new store concept and scaling omnichannel experiences, and leveraging its leadership to fuel web sales. It’ll also boost full-price selling by trimming markdowns at mainline stores.

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“This acceleration will support our profitability through increased full-price and digital penetration, improved sales density and continued tight cost control,” it said.

Net Sales: Revenue for the year ended March 27 slipped 11 percent to 2.34 billion pounds ($3.29 billion) from 2.63 billion pounds ($3.70 billion). Retails sales fell 9 percent to 1.91 billion pounds ($2.68 billion), while comparable store sales for the year were down 9 percent, reflecting a drop of 25 percent for the first half and a 5 percent uptick in the back half of the year. Wholesale sales dropped 17 percent to 396 million pounds ($555.7 million), while licensing income slumped 19 percent to 38 million pounds ($53.3 million).

Burberry said recovery accelerated through the year, leading to 32 percent comparable store sales growth in Q4. The decline was attributed to the closure of the store base—on average about 16 percent—because of the coronavirus pandemic. Despite the closures, full-price sales grew 63 percent in the quarter, driven by strength in Mainland China, Korea and the U.S. Stores in Europe, Middle East, India and Africa remained impacted by the pandemic during the fourth quarter. In addition, sales in Japan declined, hurt by a lack of international travel due to Covid-19.

The year saw first half revenue impacted by store closures and reduced tourism due to Covid-19, but then a recovery in the second half. Comparable store sales at full-price doors rose 7 percent for the year, helped by an excellent response to product, growth in the brand’s strategic categories and in selling prices, the company said. Burberry also noted that it was able to increase brand strength by attracting new and younger customers. Localized selling also bolstered sales.

Earnings: Operating profit for the year was 521 million pounds ($731.2 million), or 92.7 pence ($1.30), versus 189 million pounds ($265.2 million), or 29.8 pence (42 cents), in the prior year. On an adjusted basis, operating profit fell 9 percent to 396 million pounds ($555.7 million), or 67.3 pence (95 cents), from 433 million pounds ($607.7 million), or 78.7 pence ($1.11), in the prior year.

With Covid-19 still coloring fiscal year 2021, the company elected to use fiscal year 2020 as its base year, and guided revenue to a high single digit percentage compound annual growth rate, powered by outperforming full-price sales.

“We will continue to strengthen brand equity by exiting markdowns in mainline stores in fiscal year 2022,” Burberry said, noting that the exit would constitute a “headwind against comparable store sales growth” of a mid-single digit percentage in the full year.

“We are focused on and continue to invest in our sustainability and social goals by becoming carbon neutral by 2022, championing diversity and inclusion and positively impacting one million people in the communities in which we operate,” it added.

CEO’s Take: “In the last three years we have transformed our business and built a new Burberry, anchored firmly in luxury. We have revitalized our brand image, renewed our product offer and elevated our customer experience while making further progress on our ambitious social and environmental agenda,” Gobbetti said. “In this next chapter, supported by these foundations and the strength of our teams, we will accelerate our growth and deliver value creation while continuing to build a more inclusive and sustainable future.”