Burberry's First-Half Sales Rise 6% as It Swings to a £54 Million Operating Profit

Burberry's turnaround is now showing up in profit. In its results for the 26 weeks to September 26, published on Thursday, November 12, the British house reported revenue of £1,098 million, up 6% from £1,032 million a year earlier at both actual and constant exchange rates, and an operating profit of £54 million, against a loss of £18 million in the same half last year. Profit before tax was £19 million, against a loss of £48 million.

The measure Burberry leads with is higher: adjusted operating profit of £62 million, up from £19 million, at a margin of 5.7% against 1.9%. The gap between the two figures is £8 million of restructuring costs, primarily from the Burberry Forward programme, against £37 million in the first half last year. Part of the reported swing is therefore a smaller restructuring bill, not trading alone.

Comparable retail sales rose 4% in both the half and the second quarter, which Burberry counts as its fifth consecutive quarter of growth; the first half of last year was flat. Womenswear, menswear, childrenswear and accessories all grew. Wholesale revenue rose 17% at constant rates to £174 million, ahead of Burberry's own guidance, and e-commerce grew by a mid-teens percentage.

Burberry

Outerwear and scarves

The release says outerwear grew by double digits in the half, helped by rainwear, with "particularly good growth of lighter-weight tropical gabardine and shorter styles through the summer months", and by launches in cashmere and leather toward the end of the quarter. Leathergoods accelerated in the second quarter, and Burberry says it continues to "cement our authority in Scarves, with strong performance from silks". It doesn't give a revenue figure for outerwear or any single product, so how much of the growth is trench coats is not something the release answers.

The regions

The Americas led, with comparable sales up 12% in the half, followed by Greater China at 7% and Asia Pacific at 3%. EMEIA, the region that includes Burberry's home market, fell 2%, which the release puts down to reduced tourist activity and weak traffic, particularly in outlets. Burberry says the Americas growth was mainly local customers, and in China local spend and intraregional tourism.

Costs, cash and the outlook

Gross margin was 68.3%, up 40 basis points at constant rates, which Burberry credits to better quality of sales and strong full-price performance, along with a one-off supply chain rebate. Adjusted operating costs were £687 million against £682 million, flat at constant rates, so most of the extra sales fell through to profit. Free cash flow was an outflow of £147 million, against £50 million a year earlier, which the release attributes to a return to a normal inventory level ahead of the peak selling season, and describes as on plan.

For the full year Burberry expects "further progress on our financial ambitions, including delivering revenue growth and margin expansion", with wholesale up 10% to 12%, while remaining "mindful of the uncertain external environment". A Capital Markets Day is planned for March in London. Chief executive Joshua Schulman said: "Two years ago, we launched Burberry Forward. Today, our brand and our business are stronger. Five consecutive quarters of growth and improved quality of sales demonstrate that our strategy is working."

Our read

The shape of the recovery is the useful part. Sales grew 6% while operating costs stood still, which is why the margin moved so far. Burberry names outerwear and leathergoods as the strong categories, and wholesale supplied a large share of the extra revenue, so it is not only the shops. Scarves are among the products in its festive campaign. The weak spot is EMEIA, where Burberry says tourist activity is still reduced. The numbers the release leaves out are the ones to watch next: revenue for outerwear and leathergoods, which sit inside its product divisions, and whether the inventory Burberry is carrying into the peak season sells through at full price.