Business

Shares down as new chief executive presents investment plans

Burberry to move further upmarket in ‘luxury’ strategy

Burberry shares tumbled on Thursday. Photograph: AFP

Thu Nov 9 2017 - 16:45

Burberry, the maker of £1,400 (€1,578) trenchcoats and £500 bandanas, plans to move even more upmarket and establish itself "firmly in luxury", as it seeks enhanced profit margins that have proved elusive under outgoing designer Christopher Bailey.

Shares in the luxury brand fell 10 per cent in early trading in London, on reported pretax profits of £127 million in the first half. That marked a 24 per cent increase on last year but was behind analyst expectations. Same-store sales increased 4 per cent, enabling first-half revenues to hit £1.3 billion.

"We did anticipate this to some degree," said chief financial officer Julie Brown, referring to the share price movement. "The first-half results are very strong. The guidance is a marginal upgrade."

“Clearly some of the activities related [to the strategy change] will have caused an issue” for 2019-20, Ms Brown added.

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Marco Gobbetti, who took over as chief executive in July, vowed to accelerate and deepen the cost cuts begun under his predecessor Mr Bailey, and now plans to save £120 million a year by 2020.

But he plans to splurge that money, and more, on an investment programme that will “transform our in-store experience”. Capital expenditure could be as high as £160 million in 2019, increasing to £210 million a year over the “medium term”.

‘Convey new energy’

Burberry said it needed to “invigorate” its fashion content and “convey new energy” in its communications, as well as sprucing up its stores, in order to plant itself firmly in the “most rewarding, enduring segment of the market”.

A veteran of the LVMH stable and its luxury brand Céline, Mr Gobbetti he was hired a year ago to stamp his business authority on a business that had won plaudits for creativity but failed to match the financial success of other high-end fashion houses.

However, he now faces the additional task of finding a replacement for Mr Bailey, Burberry’s longtime creative director who announced his departure last week.

Céline's creative director Phoebe Philo is widely mentioned in connection with the role, but analysts say that hiring her could take a year or more, depending on her contractual commitments.

Ms Brown said Burberry remained “a strongly cash-generative business”, “fully committed to a progressive dividend”, and would “undertake shareholder distributions as appropriate”.

– Copyright The Financial Times Limited 2017

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