Burberry’s cost reduction strategy paying off

Worldwide
Published:  08 November, 2018

The UK headquartered fashion label’s interim results for the 26-week period ending September 29, 2018, shows reported operating profit up +36% despite retail sales remaining flat.

Revenue, excluding beauty wholesale, increased +3% (reported) in the period, with operating profit totalling £173 million (US$226.93 million), up +36% after adjusting operating items of £5 million (US$6.55 million), against £58 million (US$76 million) in the first half of 2018, and a £22 million (US$28.85 million) headwind from currency.

Referring to the leather goods category in its business and financial review, Burberry said it “began to transition” its handbags to the new creative vision of designer Riccardo Tischi and said the acquisition of a luxury leather goods business from longstanding Italian partner CF&P in the period under review “will improve innovation, quality and sustainability.” Burberry also highlighted its sustainability measures in the report. “Modern luxury means being socially and environmentally responsible. In September, we announced that we would end the practice of destroying unsaleable products and will no longer use real fur. We were also recognised as the leading luxury brand in the 2018 Dow Jones Sustainability Index.”

In its outlook for 2019, Burberry said there will be no changes at constant exchange rates and expects revenues to be up by a mid-single digit percentage due to “anticipated growth from luxury accounts more than offsetting rationalisation activity.” Looking further into 2020, the British label says there is no change to the guidance of broadly stable revenue and adjusted operating margin. “We remain mindful of the ongoing product transition that starts to build from February 2019 and the uncertain external environment, including the terms of the UK’s withdrawal from the EU”. Cumulative annualised cost savings is forecast at £120 million (US$157.44 million).