Burberry Q1 Results Reveal Gains in China, Pain in the U.S.
LONDON — Burberry’s first-quarter results shined a light on consumer trends in the world’s two biggest economies, the U.S. and China, where the mood could not be more different.
Mainland China was a boon for Burberry’s biggest in the first three months of fiscal 2023-24, with sales up 46 percent and shoppers splurging on luxury goods at home and during their holiday travels around the Asia Pacific region.
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By contrast, sales in the U.S. declined by 8 percent as “aspirational shoppers” snapped their wallets shut amid rising interest rates and a cost of living crisis. In the previous quarter, sales in the Americas region declined by 7 percent.
“We’ve seen the Chinese recover their appetite for tourism, especially in southeast Asia and Japan. Hong Kong and Macau are also proving popular with Chinese tourists now that COVID-19 lockdown restrictions have been lifted,” said Ian Brimicombe, Burberry’s interim chief financial officer.
Despite a squeeze on the middle classes, macroeconomic challenges and a new government stimulus package said to be in the works, Burberry remains bullish about China, which accounts for 30 percent of sales.
“It’s an important market, and we’re going to invest in it. China is a positive story for us and there is lots more to look forward to,” Brimicombe added.
Bernstein was expecting an even stronger recovery in China, and noted that the 46 percent uptick was short of the broker’s expectations of a 60 percent rise, “given the easy comps from last year.”
Burberry’s Chinese sales surge began building earlier this year after restrictions fully lifted. It buoyed much of the Asia Pacific region in the first fiscal quarter.
Burberry’s sales in Asia-Pacific were up 36 percent, and the company noted that Chinese tourists were driving sales specifically in south Asia-Pacific, where sales rose 39 percent.
Chinese travelers also spent their money in Japan, which saw an increase of 44 percent in retail revenue in the first quarter. South Korea held steady with growth of 6 percent, broadly in line with last year.
On the opposite end of the scale was the U.S., where middle-income, aspirational shoppers have been feeling the macroeconomic heat, and putting off their luxury spending.
Brimicombe noted that high-net-worth shoppers in the U.S. have been picking up some of the slack with their purchases of big-ticket leather goods and outerwear. He also believes the bigger picture is rosy.
“The U.S. is generally slow at the moment, but we have a lot of faith in the future of the economy, and we will be there for when it turns around,” he said, noting that Burberry is investing heavily in the region.
It is refurbishing its 57th Street flagship in Manhattan and has also remodeled its Rodeo Drive store in Los Angeles, filling it with commissioned works from the Californian artist Vince Skelly.
In May, during the year-end presentation to analysts, Burberry said the U.S. will encounter easier comps as 2023 unfurls. Burberry’s CEO Jonathan Akeroyd said the brand is “well positioned” in the market.
Bernstein was less optimistic, noting “the U.S. luxury market seems to be driven by high-end consumers, this is not putting Burberry in the most ideal position to capture the current demand tailwinds.”
Burberry said tourists from the U.S. and other countries were spending in the EMEIA region, which covers Europe, the Middle East, India and Africa, with overall sales up 17 percent in the three months to July 1.
Outerwear and leather goods were among the top-performing categories, with the new Frances bag one of the biggest sellers in the three-month period.
Outerwear comparable store sales were up 36 percent, led by heritage rainwear, while leather goods rose 13 percent as the brand continues to build and diversify the categories under its new chief creative officer Daniel Lee.
Brimicombe said a selection of looks from Lee’s debut runway collection were on display and being presold at the brand’s refurbished Bond Street store.
He added that the brand was eagerly anticipating the arrival of the colorful collection on the shop floor in the next weeks.
In the 13 weeks ended July 1, Burberry’s retail revenue rose to 589 pounds from 505 pounds in the corresponding period last year. They were up 19 percent at constant exchange, and 17 percent at actual rates.
Comparable store sales were up 18 percent in the first quarter with all regions outside the Americas making gains.
Burberry is maintaining its current fiscal-year guidance of low double-digit growth in fiscal 2024, and around 20 percent adjusted operating margin at constant exchange.
Based on foreign exchange rates effective as of June 29, the company said it is expecting a currency headwind of around 150 million pounds to revenue, and around 70 million pounds to adjusted operating profit for the year.
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