Burberry retail revenues flat, same-store sales fall 3%

Dive Brief:

Fashion house Burberry Group PLC on Wednesday reported fiscal first-quarter same-store sales declines of 3% (beating expectations of a 5% decline, but a significant dropoff compared to 6% growth in the same period last year) against an overall revenue rise of 4%.
Burberry posted underlying retail revenue of £423 million ($562.5 million), and cautioned that the outlook for wholesale revenue, particularly in the U.S., could fall 10% for the second half of the year.
The Brexit vote, which will have the U.K. depart the European Union and is already pushing down the value of the pound, is expected to benefit Burberry by making its goods more attractive to luxury consumers with dollars to spend. Burberry itself said Wednesday that it expects those benefits to continue into next year, with an adjusted retail and wholesale profit injection of £90 million, higher than its May estimate.

Dive Insight:

Burberry’s fiscal Q1 report likely will reassure investors, considering that its declines aren’t quite as dire as many feared, that Brexit’s pound-pummeling could be a net benefit, and that it’s moved to replace Christopher Bailey as CEO with Céline chief Marco Gobbetti, a move many analysts have been calling for.

The executive change, expected next year, could somewhat stall cost-cutting efforts announced in May, but efforts to boost revenue growth by focusing on key products, retail productivity, efficiencies, and e-commerce are “well underway,” Burberry said. Burberry must also address declining sales in China, the site of ambitious expansion in recent years.

While many had been urging Burberry to replace Bailey, some observers question how the partnership between Gobbetti and Bailey would be structured and why the company would be doling out two chief executive salaries, according to reporting by U.K. news outlet the Telegraph.

Bernstein analyst Mario Ortelli said that while the move "adds credibility to a Burberry turnaround story, our main question is how incumbent and new leaders will be incentivized to optimize returns to shareholders over the next several years,” the Telegraph notes.