British luxury goods group Burberry forecast that full-year profits would be ahead of expectations following a strong rebound in trading in recent months, sending its shares sharply higher.
Same-store retail sales in the final quarter of its financial year — the three months to March — are expected to be between 28 per cent and 32 per cent higher than in the same period last year, the retailer said in an unscheduled trading update on Friday.
As a result, it expects full-year group revenue to fall about 10 per cent, compared with the average decline of 13 per cent at constant exchange rates forecast by analysts. The adjusted operating margin is expected to be about 16 per cent, higher than the margin implied by current forecasts.
Shares in the FTSE 100 company were up about 7 per cent in mid-morning London trading.
Thomas Chauvet, luxury analyst at Citi, said the fourth-quarter figures were “much stronger than expected” and that if the improvement was sustained, profits in the year to March 2022 could also be about 10 per cent more than the market is forecasting.
Weak comparatives are one factor. The lockdown in China in the same period last year put a stop to all non-essential retail in the country and prevented Chinese consumers, who account for about two-fifths of Burberry’s sales, from travelling abroad.
Same-store sales in last year’s fourth quarter dropped 27 per cent as a result.
While lockdowns and other restrictions have continued in many European countries, life in China and Korea has returned to something like normal; Burberry’s Asia-Pacific sales were up 11 per cent in the third quarter, compared with a 37 per cent fall in Europe. Many US states have also allowed non-essential retail to continue trading.
Burberry has been reducing costs, with 500 mostly back-office jobs cut in July last year. That was designed to save £55m a year, on top of an existing £140m cost-reduction programme.
Last year it instigated a strategy to sell proportionately more clothing at full price, part of a wider move upmarket. Although this may lead to lower sales growth, it boosts margins and results in lower accounting provisions for obsolete inventory.
The coronavirus pandemic has disrupted chief executive Marco Gobbetti’s plans to take Burberry further into the luxury realm by raising prices and increasing exposure to areas such as handbags, where its product offerings were previously regarded as weak.
But Chauvet suggested in a note to clients that the stronger than expected recovery could put the company back on track to achieve a key profit margin target in the year to March 2023, as initially planned when Gobbetti presented his five-year strategy in 2017.
Chief creative officer Riccardo Tisci has modernised the company’s image, infusing streetwear influences into Burberry’s traditional British heritage.
But the changes have had a mixed reception in the fashion world and since Gobbetti took over as chief executive in 2017, Burberry’s shares have underperformed those of global luxury peers such as LVMH, Kering and Prada.