Models present creations from Burberry in London, the UK. Picture: REUTERS/SUZANNE PLUNKET
Models present creations from Burberry in London, the UK. Picture: REUTERS/SUZANNE PLUNKET

London/Paris — Strong demand for designer Riccardo Tisci’s new fashion ranges helped revenue at British label Burberry grow faster than expected in the first quarter, sending its shares soaring as a high stakes overhaul showed early signs of promise.

The luxury brand said sales to Chinese consumers in particular had picked up, boosted in part by younger shoppers’ response to its revamped, logo-strewn products. It had previously lagged rivals’ performance among this key clientele.

Burberry shares were up 13.1% at 10.01am GMT, on course for their best day in seven years.

Other luxury stocks also outperformed the pan-European Stoxx 600, including Hermès, Louis Vuitton owner LVMH, and Gucci parent Kering, which are due to report sales for the April to June period next week against the backdrop of enduring US-China trade tensions.

More than a year after CEO Marco Gobbetti hit the re-set button on Burberry in a bid to promote a more upmarket image, the plan faced its biggest test yet with new Tisci products accounting for half the wares on offer in its shops by the end of June.

So far, his edgier twists on classic Burberry products such as the trench coat, appear to have struck a chord.

Same-store sales rose by 4% in the period, topping market expectations of about 2% after lacklustre growth of 1% in the previous three months. “The consumer response was very promising, delivering strong growth in our new collections,” Gobbetti said in a statement.

CFO Julie Brown told reporters that items such as the new monogram collection — based on a new logo-style print in a step away from Burberry’s camel, red and black check trademark — had sold well with millennials, or roughly 23 to 38 year olds, from China.

The redesign, with a pattern of interlocking “Ts” and “Bs” from the initials of founder Thomas Burberry, was a gamble in an industry saturated with logos at a time when brands are jostling for visibility, especially on social media.

Burberry is also experimenting with monthly product launches on platforms such as Instagram, in line with rivals trying to keep younger shoppers hooked by turning over collections more rapidly. One of these “drops” in April, a black leather pair of pull-on puff sleeves, sold out in 20 minutes globally, Brown said.

Long road

Despite the buzz, Burberry still has some way to go in its turnaround. “It remains to be seen whether the commercial success of Burberry’s new brand identity can be sustained throughout the remainder of the year on a much larger share of the offering,” Citi analyst Thomas Chauvet said.

About 75% of all products in Burberry stores will be Tisci designs by March 2020.

Even as its first-quarter exceeded forecasts, the company maintained its goal for broadly stable revenue and operating margin at constant exchange rates for the 2020 financial year. It said markdowns on clothing and other items towards the end of its financial year would be less than in the previous 12 months, weighing on same-store sales growth.

The brand is also closing some stores and overhauling others, as well as withdrawing from some US department stores that don’t fit with its attempt to build a more upmarket image.

Britain’s looming exit from the EU presents another challenge and the company is preparing for the possibility of a no-deal Brexit that would disrupt its supply chains, Brown added.

Like its peers, Burberry is also exposed to trade-war ructions and slowing economic growth in China, though neither appear to be derailing luxury goods sales for now.

Recent street protests in Hong Kong had a small effect on local sales with some stores closed for five days in the past quarter, but this “did not have a material effect at group level”, Brown added. 

Reuters