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Burberry first quarter sales dip

Burberry store in LondonBritain’s Burberry reported a three per cent drop in like-for-like sales in a “challenging” first quarter, underlining the size of the task facing Marco Gobbetti when he takes over as chief executive from Christopher Bailey next year.

The luxury goods group said a positive three per cent contribution from new stores resulted in flat retail sales of STG423 million (A$735.20 million), slightly better than analysts’ expectations.

Burberry benefits from a drop in the value of the pound after Britain voted to leave the European Union last month. It said its adjusted profit for the year would be boosted by about STG90 million if exchange rates remain at current levels, compared with a previous forecast of a STG50 million boost.

Burberry announced the appointment of Gobbetti, the Italian boss of LVMH brand Celine, on Monday. Bailey will become president as well as retaining his creative role.

The firm is struggling to counter a sales downturn in mainland China and Hong Kong and fewer tourists in Europe after attacks in Paris and Brussels.

It said like-for-like sales fell in all regions in the three months to June 30.

“The external environment remains challenging and underlying cost inflation pressures persist,” it said.

The company said in May it expected profit to come in towards the bottom end of forecasts, which at that time ranged from STG375 million to STG449 million.

Mindful of the currency movements, analysts expected adjusted pre-tax profit for the full year of STG410 million on average before Wednesday’s update.

Shares in the 160-year-old firm rose to 12 week highs on Monday as investors welcomed the management changes, but they remain 25 per cent down on the level they were trading at 12 months ago.

Andrew Hall, analyst at Verdict Retail, said Burberry’s incoming Chief Executive Marco Gobbetti inherits sales weakness across all regions from Christopher Bailey, who remains on as president and CEO.

“Retail revenue remained unchanged at £423m, with l-f-l sales down 3 per cent. Gobbetti’s appointment is seen as a direct response to growing frustration with Bailey’s inability to turn Burberry’s poor performance around.

“Britain’s exit from the EU is likely to benefit Burberry in the short term, as international tourists to the UK rush to capitalise on the weakened pound. However, long term,  Burberry’s UK operations may well suffer from a reduced flow of wealthy tourists as travel to the UK becomes more regulated, making it imperative Burberry finds a way of turning this evolving geopolitical drama to its advantage,” he said.

Hall said while Gobbetti faces a number of challenges as he attempts to revive flagging retail sales, his experience at Céline will stand him in good stead. “Burberry’s strength in digital and the continuing appeal of its brand are good foundations to work with and the clear segmentation of leadership between Bailey and Gobetti will benefit Burberry’s strategic direction.”

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