May 16, 2019 / 6:52 AM / 4 months ago

Burberry's profits lack new designer's touch

LONDON (Reuters) - Investors in Burberry have yet to see if new designer Riccardo Tisci’s ranges are a hit with customers and will boost profits after the luxury brand said on Thursday its full-year results missed expectations.

FILE PHOTO: A model presents a creation during the Burberry catwalk show at London Fashion Week Women's A/W19 in London, Britain February 17, 2019. REUTERS/Henry Nicholls/File Photo

Chief Executive Marco Gobbetti said Tisci’s first two collections and limited edition drops of products on social media had built “brand heat” for the 163-year-old British label.

But the relatively small amount of product in store at the end of the financial year was not enough to ignite sales, which were flat in the 12 months to March 30.

Adjusted operating profit fell 6% to 438 million pounds ($562 million), hit by foreign exchange movements and investment in new products. Analysts had expected 442 million pounds.

“We need to get the products in the stores to start to see the reaction of customers,” Gobbetti told reporters.

“This year, starting in September, we are going to have a bigger part of our new product (in store) and we will be able to measure the reaction much better.”

He noted some “incredible performances” in the luxury market, where fashion houses Gucci and Saint Laurent have been turned around in recent years - but he said not every brand could follow that.

Burberry’s shares fell to a three-month low after the results, and were trading down 5% in afternoon trade, the biggest drop on the FTSE 100 index.

Credit Suisse analysts said fourth quarter like-for-like sales growth of 1% was below the consensus forecast of 2%, but welcomed the fact that sales and profit guidance for the current financial year was unchanged.

“The soft performance in 4Q should not be representative of the performance of the new creative direction taken by Riccardo Tisci as it accounted for only 10-15% of the total assortment in March,” they said.

Burberry’s Chief Financial Officer Julie Brown said Tisci’s runway collection and summer range achieved strong double-digit growth in the last weeks of the financial year.

The fashion house has also introduced a new “TB” monogram based on the initials of founder Thomas Burberry.

Gobbetti is repositioning Burberry firmly in the luxury segment, raising the quality and prices for key items in categories such as leather goods.

To that end, it is rationalizing its U.S. distribution to ensure the brand is in the right stores.

But it expects growth to be re-established in the second half as Tisci’s collections build through the year.

It also said on Thursday it was investing in its flagship stores, with 80 expected to be redesigned by the end of the current financial year, while it was closing 38 smaller stores in secondary locations.

FILE PHOTO: People walk past a store of British luxury brand Burberry at the Bahnhofstrasse shopping street in Zurich, Switzerland December 10, 2018. REUTERS/Arnd Wiegmann

Burberry reported full-year revenue of 2.72 billion pounds, down 1% at constant exchange rates, while adjusted operating profit was flat on the same basis.

It said its revenue and adjusted operating margin would be broadly stable at constant exchange rates this financial year, and there would be a more pronounced weighting of operating profit to the second half versus the first.

The company increased its full-year dividend by 3% to 42.5 pence a share and announced a 150 million pound share buyback.

Editing by Mark Potter and Elaine Hardcastle

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