Burberry, the British luxury brand, has seen a surge in demand for its core products following the implementation of an extensive turnaround plan, despite a continued decline in overall revenue. The company's shares soared by over 14% in early trading.
However, total retail revenue for the 13 weeks ending December 28 dropped by seven per cent, from £706m in Q3 2023 to £659m in Q3 2024, as reported by .
This was largely due to a contraction in Burberry's Asia Pacific market, which has experienced a significant slowdown over the past two years due to economic downturn and a shift towards 'quiet luxury'.
In contrast, sales in America grew by four per cent quarter on quarter – the only region to demonstrate year-on-year growth. Many analysts predict that America will be the driving force behind luxury growth this year as Donald Trump implements his tax cuts.
Despite the uncertain macroeconomic environment, Burberry stated it is now "more likely" that its second-half results will offset the first-half adjusted operating loss.
Currently undergoing an ambitious turnaround plan after a challenging trading period that saw it drop out of the FTSE 100 when its share price plummeted more than 90 per cent in less than 18 months, Burberry reported an operating loss of £53m in its first-half results, down from a profit of £223m in 2023.
"Since launching Burberry Forward in November, we have moved at pace to advance our strategy to reignite brand desire, improve our performance and drive long-term value creation," stated Joshua Schulman, the Chief Executive Officer.
"The acceleration of our core categories [outerwear and scarves] reinforces our belief that Burberry has the most opportunity where we have the most authenticity and that our strategic plan will deliver sustainable, profitable growth over time. " "However, we recognise that it is still very early in our transformation and there remains much to do," he added.
The turnaround strategy, known as ‘Burberry forward’, led to new leadership appointments across marketing, product merchandising and Americas divisions, a £40m cost reduction, and a shift towards outerwear.
Thumbs up from analysts
Investors are expected to maintain their recent stock appreciation after abandoning it during the first nine months of last year, analysts concurred. Burberry’s share price has more than doubled since hitting a 15-year low in September.
Burberry’s third-quarter performance was "well ahead of expectations," according to RBC analyst Piral Dadhania, but also "consistent with new chief executive Joshua Schulman’s strategy to re-centre the brand to areas of core competence". "We view these results as a first (and early) step in the right direction," Dadhania said.
Improvements in store layout and presentation, a renewed focus on core product categories, and the impact of markdown activity have all played a part in Burberry's recent progress. Robinhood º£½ÇÊÓƵ's lead analyst, Dan Lane, suggested that "the point of maximum pessimism is behind [Burberry]".
Naomi O’Donnell, a senior brand strategy consultant at Yonder Consulting, commented: "While it may be too early to assess its full impact, Schulman is making strides to reconnect Burberry with its roots."
She added: "Schulman’s approach isn’t just about returning to heritage; it’s also about reimagining how the brand engages with its audience. For the first time, Burberry has clearly articulated its customer segments through five distinct archetypes, giving the brand much-needed clarity and direction in a way that had been lacking in previous years."
She concluded by saying: "This focus on understanding its customer base could prove pivotal for Burberry’s future."
Takeover talk goes quiet
Last Autumn, there were rumours that Italian outerwear brand Moncler was preparing a takeover bid for Burberry. Both parties denied these rumours and no deal came to fruition.
However, analysts agreed that Burberry, with its low valuation and rich history, could be a target. Yet, as Lane pointed out, an "opportunistic deal will look less attractive the more Burberry’s strategy, and share price, show sustained promise".
"If something is brewing, it’s likely to be more thoughtful than it would have been during September lows and means now is likely the time a buyer needs to come out of the woodwork, before it’s too late and the turnaround really starts to motor."
