Falling profits at Burberry kindle cost custs
Shares in Burberry dropped sharply this week after the luxury brand revealed a hefty 10 per cent slide in pre-tax profits as it struggles with an ongoing slump in Chinese spending.
The British luxury house released preliminary results for the year ended 31 March 2016 with reported revenues of £2.5 billion, which was down 1 per cent underlying.
“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 out-performance, underpinned by strong brand and business fundamentals,” Christopher Bailey, Chief Creative Officer and CEO said.
“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.”
According to The Telegraph, the troubles within Burberry and the wider luxury market are intensifying the pressure on Mr Bailey, who is already facing some resistance from shareholders over his controversial dual role and whether his lack of corporate expertise will hinder his ability to steady the business during a torrid time for the sector.
The luxury house refused to comment directly on reports that Burberry was looking to hire another senior board member to support Mr Bailey. However, Mr Bailey admitted “we know we have skills we need to beef up”.
Carol Fairweather, Burberry’s CFO, added that the company was looking at “opportunities to evolve the way we work. We are looking at the size of the organisation and the capabilities we might need to bring in whether experts in retailing or digital”.
Burberry said it would also overhaul its retail operations and simplify its product range after full-year profit fell in a tough market that is set to persist this year.
The group, famous for its trench coats, said it expected profit to come in towards the bottom of market forecasts in the year to March 2017, and be more weighted to the second half than last year.
Burberry will use the efficiency program to cut their operating costs by about 10 per cent excluding fixed rent and depreciation, it said last week, and deliver cost savings of at least £100 million by 2019. Fortune Magazine reports that only around £20 million of savings will come through in the current year, however.