14 November 2024

BURBERRY GROUP PLC

STRATEGY UPDATE & INTERIM RESULTS FOR 26 WEEKS ENDED 28 SEPTEMBER 2024

"My first few months have reaffirmed my belief that Burberry is an extraordinary luxury brand, quintessentially British, equal parts heritage and innovation. Burberry's original purpose to design clothing that protects people from the weather is more relevant than ever. Our recent underperformance has stemmed from several factors, including inconsistent brand execution and a lack of focus on our core outerwear category and our core customer segments. Today, we are acting with urgency to course correct, stabilise the business and position Burberry for a return to sustainable, profitable growth. We have a powerful brand with broad appeal among luxury customers, authority in the outerwear and scarf categories which have remained resilient through this period, and a strong presence in all key luxury markets. Now, we have a clear framework to reignite brand desire, improve our performance and drive long-term value creation. Building on our strong foundations, I am confident that Burberry's best days are ahead."

- Joshua Schulman, Chief Executive Officer

STRATEGY UPDATE

Today, Burberry announces 'Burberry Forward', a strategic plan to reignite brand desire, improve our performance and drive long-term value creation. Our focus in this next phase is on reconnecting our brand with its original purpose and leveraging our strengths with a disciplined approach and a range of products to attract a broad base of luxury customers.

Burberry is a highly differentiated luxury brand with a unique history and heritage, and category authority in outerwear and scarves. Over the past several years, we moved too far from our core with disappointing results. Our brand expression was focused on being modern at the expense of celebrating our heritage. We introduced new brand codes and signifiers that were unfamiliar to our customers. Our product was weighted to seasonal fashion with a niche aesthetic obscuring our more timeless core collections. As we pursued brand elevation, our pricing particularly in leather goods did not always align with our category authority. Consequently, Burberry's offer was skewed to a narrow base of luxury customers.

Burberry has all the attributes to be a high-performing luxury brand. We have the most opportunity where we have the most authenticity. We have an inspirational founder who created practical and stylish solutions for his era. An original purpose linked to a product that still resonates today. Authority in a core category. Quality that confers status and identity. Iconic brand codes. Relevance to a broad range of luxury customers and global brand awareness that is bigger than our business.

Today's luxury customer craves authenticity. As the only British luxury brand with such strong foundations, we have a competitive advantage. We will leverage our strengths and broad universal appeal to reclaim market share.

BURBERRY FORWARD:

OUR FRAMEWORK FOR SUSTAINABLE VALUE CREATION

·      Timeless British Luxury

o  Juxtapose heritage and innovation across all customer touchpoints

o  Balance seasonal fashion messages with campaigns celebrating outerwear authority

o  Capture British wit and style and balance recognisable London imagery with British countryside

·      Lead with outerwear and earn authority in other categories

o  Align pricing with category authority

o  Celebrate iconic brand codes with recognisable brand signifiers

o  Rebalance offer with fewer, bigger investments

·      Align distribution with product and customer strategy

o  Increase store productivity through core category amplification

o  Optimise brand presence in wholesale and outlet

o  Improve e-commerce functionality and rebalance product assortment and styling

·      Reignite high-performance culture and capabilities

o  Drive organisational clarity

o  Rebuild executional discipline

o  Leverage data-driven decision making to complement creativity and intuition 

Delivery of the plan will be facilitated by greater alignment between commercial and creative teams and consistently putting the customer at the heart of everything Burberry does. We are reviving a high-performing culture. Our plan will be underpinned by continued focus on productivity, simplification and financial discipline.

We recognise there is much to be done in the short term, and we are acting with urgency. We are confident we can get back to generating £3 billion in annual revenue over time, while rebuilding margins and driving strong cash generation.

IMMEDIATE ACTIONS

In the last 90 days, we have implemented the following immediate actions:

·      Launched "It's Always Burberry Weather" Outerwear campaign and "Wrapped in Burberry" Festive campaign to reset brand in the eyes of customers

·      Evolved visual merchandising to accentuate outerwear and scarves in stores; initiated global roll out of Scarf Bars in 57th Street flagship in New York

·      Updated styling online to appeal to a broad range of luxury customers; launched Virtual Scarf Try On

·      Appointed new leaders across Marketing, Product Merchandising and Planning, and the Americas; introduced new ways of working to achieve creative and commercial alchemy

·      Initiated cost savings programme to unlock annualised savings of c.£40m (c.£25m to deliver in FY25)

·      Accelerated plan to address inventory overhang and restore scarcity

FY25 OUTLOOK

We are acting with urgency to stabilise the business and position the brand for a return to sustainable, profitable growth, supported by strong cash generation and balance sheet strength. We are confident that our strategic plan will improve our performance and drive long-term value creation. In the short term, with our all-important festive trading period ahead and an uncertain macroeconomic environment, it is too early to determine whether our second-half results will fully offset the first-half adjusted operating loss.

INTERIM RESULTS FOR 26 WEEKS ENDED 28 SEPTEMBER 2024

GROUP FINANCIAL HIGHLIGHTS

^*See page 12 for definitions of alternative performance measures, ^** Not meaningful

Comparable store sales by region*

*See page 6 for further detail including split of Asia Pacific

Revenue

·    Revenue £1,086m -20% CER, -22% reported

·    Retail comparable store sales -20% (Q1 -21%, Q2 -20%); Wholesale -29% CER, -30% reported

Adjusted (loss)/profit measures

·    Adjusted operating loss of £41m including headwinds of £33m impairment charge (H1 FY24: £nil) and net £29m inventory provision charge (H1 FY24: net £6m charge)

·    Adjusted gross margin 63.4%, -640bps at CER and reported

·    Adjusted operating margin -3.4% CER, -3.8% reported

·    Operating expenses before adjusting items -1% CER, -3% reported

·    Adjusted diluted EPS -18.3p (H1 FY24: 42.1p).

Reported (loss)/profit measures

·    Operating loss of £53m after £12m adjusting items charge (H1 FY24: £nil)

·    Operating margin -4.9% reported

·    Operating expenses after adjusting items flat versus last year at reported

·    Diluted EPS -20.8p (H1 FY24: 42.1p).

Cash measures

·    Free cash outflow of £184m (H1 FY24: £15m outflow)

·    Cash net of overdrafts £324m at 28 September 2024 (30 March 2024: £362m), with borrowings of £602m and lease liabilities £1,136m.

All metrics and commentary in the Group Financial Highlights and Business and Financial Review exclude adjusting items unless stated otherwise.

The financial information contained herein is unaudited.

The following alternative performance measures are presented in this announcement: CER, adjusted (loss)/profit measures, comparable sales, free cash flow, cash conversion, adjusted EBITDA and net debt. The definitions of these alternative performance measures are on page 12.

Certain financial data within this announcement have been rounded. Growth rates and ratios are calculated on unrounded numbers.

Enquiries

·        There will be a presentation today at 9.30am (UK time) for investors and analysts at Horseferry House 2, 1A Page Street, London SW1P 4PQ

·        The presentation can also be viewed live on the Burberry website https://www.burberryplc.com/, you can also click here to register  

·        The supporting slides will be available on the website prior to the presentation and an indexed replay will be available later in the day

·        Burberry will issue its Third Quarter Trading Update on 24 January 2025

Certain statements made in this announcement are forward-looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward-looking statements. Burberry Group plc undertakes no obligation to update these forward-looking statements and will not publicly release any revisions it may make to these forward-looking statements that may result from events or circumstances arising after the date of this document. Nothing in this announcement should be construed as a profit forecast. All persons, wherever located, should consult any additional disclosures that Burberry Group plc may make in any regulatory announcements or documents which it publishes. All persons, wherever located, should take note of these disclosures. This announcement does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares, in the UK, or in the US, or under the US Securities Act 1933 or in any other jurisdiction.

Burberry is listed on the London Stock Exchange (BRBY.L) and is a constituent of the FTSE 250 index. ADR symbol OTC:BURBY.

BURBERRY, the Equestrian Knight Device, the Burberry Check, and the Thomas Burberry Monogram and Print are trademarks belonging to Burberry.

www.burberryplc.com

LinkedIn: Burberry

SUMMARY INCOME STATEMENT

*Excludes adjusting items. All items below adjusting operating items are on a reported basis unless otherwise stated.

For detail, see Appendix.

FINANCIAL PERFORMANCE

Revenue by channel

In H1:

·    Retail sales declined 19% at CER; -21% reported

·    Comparable store sales fell by 20% with 1% impact from space

Comparable store sales by region

Asia Pacific declined 25% in H1 (Q1 -23%; Q2 -28%)

·    Mainland China comparable store sales fell 24% in H1 (Q1 -21%; Q2 -27%). Globally, the Chinese customer group declined low-double digits but continued to perform better than Mainland China in Q2.

·    South Korea declined 26% in H1 (Q1 -26%; Q2 -26%)

·    Japan fell 2% in H1 with Q2 down 9% offsetting the positive performance in Q1 of +6%. Tourist growth remained robust up double-digits in H1, against tough comparators last year

·    South Asia Pacific declined 38% in H1 (Q1 -38%; Q2 -37%).

EMEIA fell 13% in H1 (Q1 -16%; Q2 -10%). The sequential improvement in quarters versus last year was driven by both local and tourist spend with tourists declining a mid-single digit percentage and accounting for just over half of retail revenues.

Americas declined 21% in H1 with Q2 down 18%, showing an improvement versus Q1 which was down 23%. Globally, the Americas customer group performed slightly better than the region in H1.

By product

·    Outerwear and softs continued to perform better than the average in all key regions

·    Ready-to-wear performed in line with the group average in H1, with an improving trend Q1 to Q2 for both men's and women's

·    Leather goods and shoes underperformed the group in H1.

Store footprint

We opened 19 stores in the half and closed 12, with 429 directly operated stores at 28 September 2024.

Wholesale

Wholesale revenue decreased 29% at CER and 30% at reported rates in H1 impacted by weakening consumer demand. We expect the full year to be down around 35% as we continue the strategic review of our partners.

Licensing

Licensing revenue grew 5% at CER and 3% at reported rates in H1 driven by the continued strong performance in fragrance.

OPERATING (LOSS)/PROFIT ANALYSIS

Adjusted operating (loss)/profit

*Excludes adjusting items

·      Adjusted operating loss was £41m in the first half including headwinds of £33m impairment charge (H1 FY24: £nil) and net £29m inventory provision charge (H1 FY24: net £6m charge)

·    Gross margin was 63.4%, down 640bps at CER and reported, driven by increases in product costs, inventory provisioning and inventory exit

·    Adjusted net operating expenses were 1% lower at CER and 3% at reported rates. This was driven by tight cost control alongside a reduction in our variable costs. We delivered £8m in structural savings from our organisational efficiency programme initiated during the half year.

·    Adjusted operating margin was -3.8% compared to 15.9% last year.

ADJUSTING ITEMS^*

^{Adjusting items were a £12m charge (H1 FY24: £nil)}

*For detail on adjusting items see note 4 of the Financial Statements

Restructuring costs of £12m (H1 FY24: £nil) were incurred, arising primarily as a result of an organisational efficiency programme initiated during the period, which includes the streamlining of office-based functions. The costs principally related to redundancies and were recorded in operating expenses.

ADJUSTED (LOSS)/PROFIT BEFORE TAX*

After a net finance charge of £27m (H1 FY24: £4m), adjusted loss before tax was £68m (H1 FY24 adjusted profit before tax: £219m).

*For detail on adjusting items see note 4 of the Financial Statements

TAXATION*

The Group's adjusted effective tax rate is 5% (H1 FY24: 27%) and the reported effective tax rate is 8% (H1 FY24: 27%). The reduction in the H1 FY25 reported tax rate versus H1 FY24 is driven by reduced profitability causing routine disallowed expenses to have a greater impact.

*For detail see note 6 of the Financial Statements

CASH FLOW

Represented statement of cash flows

*For a definition of free cash flow see page 12

Free cash outflow was £184m in the half (H1 FY24: £15m outflow) driven by reduced profitability

The major components were:

·      Cash generated from operating activities decreased from £271m to £51m

·      A working capital outflow of £123m (H1 FY24: £154m) due to inventory build-up and seasonal effects

·      Capital expenditure of £87m (H1 FY24: £89m).

Cash net of overdrafts on 28 September 2024 was £324m (30 March 2024: £362m). On 28 September 2024 borrowings were £602m after raising a £300m bond in June 2024, in addition to the existing £300m sustainability bond maturing in September 2025. This resulted in net debt of £278m before lease liabilities of £1,136m (30 March 2024: net cash £63m).

After lease liabilities, net debt in the period was £1,414m (30 March 2024: £1,125m). Net Debt/Adjusted EBITDA was 2.4x. The increase in leverage from 1.4x at the FY24 year-end was primarily driven by lower profitability and working capital outflows. The £300m Revolving Credit Facility (RCF) remains undrawn. 

*For a definition of adjusted EBITDA and net debt see page 13

APPENDIX

Detailed guidance for FY25

Note: Guidance based on CER at FY24 rates

*Mix based on H1 FY25

*Excludes the impact of pop-up stores

*For detail on adjusting items see note 4 of the Financial Statements

*For detail on adjusting items see note 4 of the Financial Statements

Alternative performance measures

Alternative performance measures (APMs) are non-GAAP measures. The Board uses the following APMs to describe the Group's financial performance and for internal budgeting, performance monitoring, management remuneration target setting and external reporting purposes.

PRINCIPAL RISKS

The Group's approach to risk management and principal risks are detailed on pages 83-90 of the FY24 Annual Report. The principal risks the Group faces for the remaining 26 weeks of the financial year have been reviewed relative to the prior year-end.   At the half year, Global Consumer Demand principal risk is considered to have increased, exacerbated by slower economic growth in our key regions. The Group is addressing the challenges by implementing revised risk mitigation strategies. The Board consider there to be no other significant changes in the Group's principal risks for the remaining 26 weeks of the financial year.