Burberry to axe its headcount as it warns of “challenging environment” that has sent profit and revenue lower
Luxury retailer Burberry will cut jobs over the next three years as part of its turnaround plan.
Chief financial officer Carol Fairweather said “some headcount reduction” would take place but declined to comment on specific numbers or where in the business the cuts would come.
The company is targeting £100m of cost savings over the next three years.
Burberry's share price fell following its full year results this morning and was down by almost 2.2 per cent in late afternoon trading as it yet again warned that the "challenging environment" in luxury will continue as the British brand reveals worse than expected falls in profit.
The figures
Total revenue fell one per cent to £2.52bn for the year to 31 March, with comparable sales down one per cent. However much of this downwards pressure came from Hong Kong and Macau – without these two territories sales were up three per cent.
Adjusted profit before tax fell £35m to £421m – slightly more than the seven per cent that was expected – while reported profit before tax was down 6.5 per cent to £416m.
Total adjusted operating profit declined by 11 per cent underlying.
However the luxury clothing brand has raised its dividend pay out five per cent to 37p, and said 2017's will be "at least in line" with that level. Profits will be at the lower end of expectations for the current financial year.
Burberry's share price was down 2.7 per cent in early trading.
Why it's interesting
Burberry set out a three year plan on the back of a new review, saying that it expects the luxury market to grow by single digit figures over the next five years, with accessories "marginally" outperforming clothes and beauty.
The brand will cut costs by “at least £100m” by 2019 and to target areas where it can expand, such as online.
But will it be enough? Christopher Bailey has been under the microscope since taking the dual role of chief creative and chief executive officer – along with its bumper pay – but after successive periods of sluggish performance, the critics are now circling.
Burberry's share price has fallen more than 35 per cent in the last year and yesterday even saw the stock targeted by short-sellers.
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What Burberry said
Bailey said: "While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to drive Burberry's future outperformance, underpinned by strong brand and business fundamentals.
"We continue to see significant opportunities ahead of us and have put ambitious plans in place to increase future revenue, enhance productivity and create a more efficient organisation.
"In addition, the capital allocation framework announced today prioritises the investment needs of the business and regular dividend payments to our shareholders, while balancing capital efficiency and flexibility."
What analysts said
Paul Thomas, senior consultant at Retail Remedy, said it "could be a defining year for Burberry and for Bailey".
He added: "Burberry capitalised on the opportunity in China, but put all its trenchcoats in one basket and are now exposed to its slowdown.
"Christopher Bailey looked to be flourishing in the demands of chief executive and chief creative officer last year, however the story looks somewhat different this year. The appointment of a commercially savvy number two is now imperative to deliver against the ambitious plans laid out in the prelim statement.
"From the prelim statement, it is clear that Bailey's creativity and brand vision has played a significant role in its authorship. The business now need a commercially expereinced heavy weight to deliver against it. The detail is where the plan could fail if left untended."
Steve Clayton, head of equity research at Hargreaves Lansdown, said: "The travelling Chinese luxury consumer is clearly still reluctant to come out and spend money at the moment, and as long as that remains the case, things are likely to remain tough for Burberry.
"Guidance toward the bottom end of the range offers little near-term comfort and the cost savings and buy-backs will do little to move the dial, given the steady slew of downgrades that shows little sign of abating. There is a great brand at the heart of Burberry, but it needs stronger Chinese demand to shine. The reductions in longer term market growth expectations are disappointing, but reflect the new reality.
"Longer term we still like Burberry, it has a robust balance sheet and offers an attractive yield for a company with its growth potential. If and when the Chinese consumer comes out to shop again, things should start looking up for the retailer.’
In short
Burberry needs to pull something out of the bag to win its shareholders over.