Thursday 12 November 2020 8:28 am

Burberry shares climb as group clings onto profit during pandemic

Burberry shares climbed almost four per cent at market open this morning as the luxury retailer announced it had clung onto profit during the coronavirus crisis.

The results

The pandemic dealt a heavy blow for Burberry, with revenue sinking 31 per cent in the 26 weeks to 26 September, as the fashion retailer was forced to shutter stores around the globe.

But while operating profit slumped 75 per cent compared to the same period last year, Burberry managed to stay in the black, reporting £51m profit for the half-year.

Strong online sales saw the group generate revenue of £878m for the period, though the figure marked a 25 per cent fall from the £1.28bn profit reported in September last year.

Burberry withheld an interim dividend, and said it will review full-year dividends in March.

Shares climbed 3.8 per cent to 1,721p at market open.

Why it’s interesting

Burberry said it was “encouraged by the recovery in [the second quarter] but remained conscious of the uncertain macro-economic environment caused by Covid-19”.

More than 10 per cent of the group’s stores around the world still remain shuttered due to nationwide lockdowns across Europe. 

However, it has continued to recover since the summer, with a return to health further accelerated in the last two months. Store sales in September were down just low single digits compared to the same period last year, while they swung into growth in October.

Burberry welcomes 21 per cent store sale growth in the US over the six months, driven by momentum with younger customers.

Asia notched 10 per cent store sale growth for the period, with strong performances in mainland China and Korea that “more than offset” sales in other markets including Hong Long and Australia.

Burberry said the UK “remained difficult”, following “weak tourist demand given the high London exposure”.

Leather goods became the group’s most successful product, while customers lost interest Burberry’s signature trench coats as they were forced to stay inside. t

Following heavy cash outflow in April when the bulk of its stores were forced to close, Burberry stabilised in May and were free cash flow positive from August.

The group said outflow for the six months to September “reflects trading and is in line with normal seasonality which includes the festive season inventory build”.

Burberry said it will reduce markdowns to continue attracting new and younger consumers, in a move that will cause “a revenue headwind… but will serve the long term interest of the brand”.

What Burberry said

Marco Gobbetti, chief executive of Burberry, said:

“Though the momentum we had built was disrupted by Covid-19 at the start of the year, we were quick to adapt, while making further progress against our strategy. 

“While the virus continues to impact sales in [Europe, the Middle East, India and Africa], Japan and South Asia Pacific, we are encouraged by our overall recovery and the strong response to our brand and product, particularly among new and younger customers. In an environment which remains uncertain, we will continue to deliver exceptional product, localise plans and shift resources, while leveraging the strength of our digital platform to inspire customers.”