Burberry sales beat estimates on recent boost in UK demand

Bloomberg

Burberry Group Plc, the UK luxury-goods maker that shook up its top management ranks earlier this week, reported revenue that slightly beat analysts’ estimates as shoppers in the UK stepped up purchases of rucksacks and trenchcoats in the final weeks of June.
First-quarter retail revenue was little changed at £423 million ($563 million) in the three months through June, London-based Burberry said. Analysts predicted £ 415 million. Comparable sales fell 3 percent, beating the 5 percent drop expected by analysts. The company also said wholesale revenue will fall by more than 10 percent in the first half, more than it previously anticipated. The shares rose as much as 4.1 percent in London.
“The better than expected like-for-like sales development in the first quarter is encouraging and should be taken well by the market, despite the reduction in the wholesale sales,” Zuzanna Pusz, an analyst at Berenberg, said in a note.
Burberry surprised investors this week by announcing that Christopher Bailey will give up his role as chief executive officer and focus on steering creative design after a two-year experiment in handling both roles led to declining profits and slumping shares. The company, grappling with a global slowdown in luxury spending, is also getting a new chief financial officer.
One bright spot amid Burberry’s woes is the weakness of the pound after the UK’s vote to leave the EU, which has encouraged foreign tourists to come shop in Britain. Burberry said sterling’s plunge would boost full-year profits by about £90 million, up from its earlier £50 million forecast. In an interview Monday with Bloomberg Television, Bailey said the pound’s weakness “helps in certain ways.”
“The UK is the stand-out market,” Rogerio Fujimori, an analyst at RBC, said in a note.
The company’s wholesale revenue will fall more than expected due to tighter inventory controls by US retail customers and subdued demand in other regions, it said. Sales in Hong Kong showed “some improvement,” Burberry said, yet remained mired in decline.
Bailey said that incoming CEO Marco Gobbetti supports the strategy he’s followed, which includes narrowing Burberry’s product range, putting a sharper focus on bags and online sales, and cutting costs. His plan to target annual savings of 100 million pounds within three years implies job cuts, which Sanford C. Bernstein analyst Mario Ortelli estimates could run into the hundreds.
“We will have to wait a few quarters before the impacts of the new leadership translate in the business,” Exane BNP Paribas analyst Luca Solca said in a note.
The company also commenced a previously announced share buyback of up to £ 150 million.