Burberry, the British luxury brand, has seen a surge in demand for its core products following the implementation of an extensive turnaround plan, resulting in shares skyrocketing by over 14% early trading. Despite this positive development, total retail revenue for the 13 weeks ending December 28 dropped by seven percent, from £706 million in Q3 2023 to £659 million in Q3 2024, as reported by City AM.
This revenue decline was largely due to significant challenges faced by Burberry's Asia Pacific market, which has seen substantial slowdowns over the past two years due to economic downturns and shifts toward 'quiet luxury'. Conversely, sales within America grew by four percent quarter on quarter, marking the only region with year-on-year increases. Many analysts anticipate the American market will be the primary driver of luxury growth as economic conditions evolve under recent tax reforms.
Burberry has indicated it is now more likely to see its second-half results offset earlier substantial operating losses. Currently undergoing an ambitious turnaround plan after previously dropping out of the FTSE 100, Burberry reported a £53 million operating loss during its first-half results, contrasting sharply with profits of £223 million the previous year. Joshua Schulman, CEO of Burberry, explained: "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." He added, "The acceleration of our core categories [outerwear and scarves] reinforces our belief...that our strategic plan will deliver sustainable, profitable growth over time."
Despite these upbeat declarations, Schulman acknowledged the challenges still facing the brand: “We recognize it's still very early in our transformation and there remains much to do.” This turnaround strategy includes new high-profile leadership appointments across its marketing, product merchandising, and Americas divisions, all aimed at reducing costs by £40 million and shifting emphasis back to core categories like outerwear.
There has been favorable feedback from analysts, with observers noting increased investor confidence compared to earlier last year. Burberry’s share price has seen remarkable recovery, more than doubling since reaching a 15-year low last September, as they implement positive strategies. RBC analyst Piral Dadhania described the third-quarter performance as "well ahead of expectations," remarking on its alignment with Schulman’s tactics to refocus the brand on its core competencies.
It’s worth noting, according to Dan Lane, lead analyst at Robinhood UK, “the point of maximum pessimism is behind [Burberry].” He pointed out improvements in store layouts, presentations, and marketing focus as contributing to the brand’s recent advancements. Naomi O’Donnell, senior brand strategy consultant at Yonder Consulting, emphasized, “While it may be too early to assess its full impact, Schulman's actions are effectively reconnecting Burberry with its roots.” She continued, “This focus on customer segments could prove pivotal for Burberry’s future.”
Interestingly, last autumn rumors circulated about the Italian luxury brand Moncler potentially pursuing Burberry for acquisition. Yet, both companies have denied these discussions, and no such deal has emerged. Analysts speculate, though, regardless of the potential for acquisition, Burberry’s current strategies and rising share prices may deter such opportunistic offers.
Lane observed, "If something is brewing, it’s likely to be more thoughtful than it would have been during the September lows, and it is likely the time for the buyer to emerge before the turnaround begins to gain real traction." With the positive outlook and share price leap—up nearly 50% over just three months—Burberry may be on its way to recovering its status as the quintessential luxury brand.
Despite this upswing, Burberry must navigate cautious optimism. The company’s revenue overall remains down by seven percent compared to previous periods, with contrasting results exhibited within different regions—its biggest Asian markets struggling, leading to declines across categories, particularly local and tourist sales. Yet there is optimism based on recent campaigns like “It’s Always Burberry Weather” and seasonal promotions, which may help recover sentiment within the luxury sector.
Analysts remain cautiously optimistic about Burberry's recovery and the effectiveness of its 'Burberry Forward' strategy. Their recent numbers showcase progress, but consensus among investors indicates the need for sustained performance before any shifts occur within their market strategy.
The path remains challenging, but the turn of events aligns with the brand’s efforts to re-establish itself as not just relevant but also at the forefront of luxury fashion. Burberry’s rich heritage bolsters its potential, and as it realigns its focus and strategies, many will be watching closely to see how well this luxury title redefines itself moving forward.