Good morning, and thank you for joining Burberry's Q3 trading update call. My name is Julie Brown, Chief Operating and Financial Officer of Burberry. With me this morning is Julian Easthope, our Head of IR. Slides are available to accompany this presentation on the IR section of our website, and a transcript will also be made available. In November, we outlined our plan to accelerate growth and realize our ambition as the modern British luxury brand.
This quarter, we continue to make progress against these strategic objectives. Comparable store sales grew 1% impacted by COVID-19 related disruption in Mainland China, which fell 23%. We remain encouraged by our global performance, with comparable store sales growing 11% outside of Mainland China, with EMEA, South Korea, Japan, and SAP all achieving double-digit growth.
Throughout the period, we continued to amplify our brand with the outerwear festive and Lunar New Year campaigns at the end of the period. Leather was the standout category, with continued strong sales of the Lola range, as well as very good traction from Giant Check and the Frances bag.
Outwear had a tougher quarter affected by the exposure to Mainland China, but we still saw high single-digit growth in the rest of the world. The rollout of stores in the new format is progressing well, with 15 completed this quarter, and we remain on track to complete 65 stores this year. I'm pleased to say we continue to see these stores generating a higher AUR and retail productivity.
In sustainability, we are pleased to report that we achieved an A rating with CDP and a triple A rating with MSCI for leadership in transparency and performance to tackle climate change. During the third quarter, we continued to build on our commitments to communities partnering with OnSide to support their Winter Appeal.
Finally, we have completed GBP 363 million of the GBP 400 million share buyback, with the balance to be completed by the end of the year. Slide three provides more data on the breakdown of our retail sales. As mentioned, comparable store sales grew by 1% in the period. The impact of space is -1%, leading to flat retail sales at constant currency. We still anticipate retail space to be broadly stable for the full year.
Currency was a 5% tailwind this quarter, with reported retail revenue landing 5% up compared with last year. Outside of Mainland China, we saw another quarter of double-digit growth at 11%. EMEA delivered 19% growth, this was primarily driven by tourists increasing around 80% year-over-year and accounted for around 40% of our sales, with Americans and Middle Eastern customers being the key driver.
Overall, retail revenue from EMEA nationals increased by low single digits. Taking a look at EMEA as a region versus pre-pandemic levels, full price sales are now well ahead and total retail revenue is now broadly stable. The Americas showed a slight improvement quarter-over-quarter, posting a 1% decline in Q3 from -3% in the first half.
The brand elevation journey has led to higher AUR categories performing well, led by the female customer, especially in leather goods. This was offset by pressure in entry-level categories. Globally, nationals from the Americas were 3% up this quarter, including tourist traffic, mainly to EMEA.
Asia Pacific fell 7% in Q3, with Mainland China down 23% and the rest of Asia Pac up 16%. Mainland China saw volatile trading affected by lockdowns and more recently by COVID outbreaks amongst our customers and client advisors. We saw a fall in traffic to stores in China during December, although there has been a good recovery in January. South Korea saw another strong quarter rising 10%, similar to the 11% delivered in Q2.
Japan delivered a very strong performance, rising 28% this quarter, driven by leather goods, and South Asia Pacific was up 15%. Given the importance of the Chinese customer, slide five splits our performance in and outside of Mainland China. Group trading has been reasonably stable outside of Mainland China, so I thought I would provide more background on the impact of the Chinese customer.
Pre-pandemic in 2019, Chinese nationals accounted for around 40% of group retail revenue, with just over half shopping in Mainland China and the balance overseas. By contrast, in this year to date, the Chinese only account for around 25% of our business, impacted by COVID-19 restrictions and a lack of international travel.
While the timing and pace of recovery remains uncertain for the rest of this year, we are confident in the opportunity and the long-term prospects of the Chinese market. Returning to strategy, I will now take you through our initiatives in brand, product, and customer experience in more depth. A key pillar in our strategy outlined in November is to harness the power of our brand.
We made good progress in the quarter with the outerwear festive and Lunar New Year campaigns. We started the second half with our outerwear activations that were supported by over 50 pop-ups, VIP experiences, influencer campaigns, and a partnership with Minecraft. We followed this with our festive campaign, starring Shakira and Burna Boy, called The Night Before, which celebrated the excitement and anticipation of festive preparations.
We saw very strong traction and engagement with two joint Instagram posts with Shakira and our best non-collab reel to date. We ended the quarter with our Lunar New Year campaign, Take a Leap, inspired by the year of the rabbit, featuring a playful interpretation of the TB Monogram. We are pleased to report that our brand investments have been well-recognized with two awards recently.
In December, Burberry won the Metaverse World and Gaming Experience Award at the 2022 The Fashion Awards in recognition of our innovation in this space through partnerships with Blankos Block Party and Minecraft. We were also recently honored by the 2022 Prix Versailles Official World Awards, winning a category for our imagined landscapes pop-up in Jeju, South Korea. The awards celebrated the best in contemporary architecture, highlighting innovation and creativity, as well as ecological efficiency and cultural impact.
Moving to product on Slide seven. Supported by a dedicated campaign and a 360-degree program of commercial activations for festive, accessories grew double digits outside of Mainland China. We made good progress in leather, launching new styles of the Lola bag, including the Vintage Check bouclé option during festive and continued to innovate across all ranges, seeing strong traction in our house codes.
In addition to the Lola, the Giant Check and the Frances bag also performed well. Men's accessories grew strong double digits, with bags increasing over 25% and small leather goods up over 15%. Soft accessories also performed strongly during festive, with the iconic Archive Beige Check Cashmere Scarf generating 60% of sales for this category. Women's ready-to-wear comparable sales increased by a mid-teen percentage, supported by dresses and the knitwear featured in our seasonal campaigns.
Outerwear comparable sales grew high single digits outside of Mainland China, with total sales affected by the high dependence on the Chinese market. Moving on to the next slide, I wanted to share an example of the investment we have made to improve customer experience and drive growth. In Hong Kong SAR, we now have three stores in the new store concept, Pacific Place, K11 Musea, and Lee Gardens, that positions us well as the border reopens with Mainland China.
In December, we opened a highly successful activation, our first-ever ice rink over the K11 Musea Promenade in Hong Kong, designed with bespoke iterations of the TB Monogram and constellation graphics. This created a major buzz with ticket sales selling out and a very high level of reach on social media. The associated outerwear pop-up achieved triple-digit growth versus the activation last year.
On customer, we continue to elevate the in-store experience and strengthen distribution, rolling out our new concept to 50 more locations in the quarter across Asia, EMEA, and the U.S. Key highlights include Pacific Place, as mentioned, and NorthPark Center, Dallas. We remain on track to achieve our target of completing 65 newly designed stores in full year 2023, bringing the total to over 100 by the end of the year, equating to around a third of the retail estate.
In these stores, we continue to see a higher level of AUR and an improvement in store productivity, and are pleased with the performance of the new store concept. Moving on to our ESG agenda. Our commitment to sustainability was recognized across key benchmarks in the period.
We were commended by both CDP with an A rating and MSCI with a triple A rating for our transparency and performance across environmental issues. Burberry was one of a small group of organizations to achieve these ratings from both agencies. We also continue to support our communities through the cost of living crisis, partnering with OnSide, a major youth charity, to ensure that young people can access food, warmth, and safety this winter.
Finally, the outlook. Overall, our near and medium-term targets remain unchanged as we continue to target high single-digit revenue growth with operating leverage, ensuring good margin progression notwithstanding the macro environment. It is still too soon after the reopening of borders and relaxation of COVID restrictions in Mainland China to understand the near-term effects, but we remain confident in the recovery and the potential of the Chinese market in the medium term. The only change to the outlook since we announced in November is currency.
We now expect there to be a revenue tailwind of around GBP 160 million, compared with GBP 170 million previously. With adjusted operating profit remaining the same at or around GBP 70 million, based on the 30th of December spot rates. All other guidance areas remain unchanged and are shown in the appendix. Thank you for joining. We can now move into the Q&A.
Ladies and gentlemen, if you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask a question, please ensure that your phone is unmuted locally. To confirm, that's star followed by one to ask a question. Our first question is from the line of Antoine Belge from BNP Paribas Exane. Please go ahead.
Yes. Good morning. It's Antoine Belge at BNP Paribas Exane. Two questions. First of all, is it possible to have an update on the cadence of the product launches from your new designer? Also in terms of first of all, presentation, fashion shows, but also in terms of, you know, products in store. My second question relates to the EBIT consensus. You know, after the trading statement of today, would you expect some changes in EBIT for the fiscal year, March 2023? Thank you.
Thank you very much, Antoine Belge. Turning to your first question around the cadence. We're really all looking forward to Daniel's debut collection in February, so we've got the show coming up in February. He's actually also going to be using existing product from Riccardo Tisci, but launching a campaign which is his aesthetic around Burberry, with a greater deal of a great deal of influence in terms of the Britishness of the brand.
That's coming up in early Feb. In terms of the product going into the stores, his product will first go into the stores in September. And this will then be followed by the next fashion show, which will be in September for spring/summer, and that will enter the stores in November and January. We're all looking forward to that.
There's a huge amount of excitement in the organization across the design teams, and the marketing teams and commercial areas of the business around what's to come over the next few weeks. Just to come back to your point about consensus. We believe in terms of the, first of all, revenue expectations, we do anticipate people will actualize for the results this quarter, and obviously adjust for the exchange rate change as well. In terms of EBIT, we expect it to be remain broadly similar.
You know, clearly the big swing factor in this fourth quarter, I mean, the rest of the business outside of mainland China is performing extremely consistently in double digits. We've delivered double-digit growth across all 3 quarters now, up 16, up 15, up 11%.
The key, I guess, change factor is China and just how it reopens. Very optimistic about the market in the medium term, it's just getting through this reopening period due to infection levels. Overall, we'd expect consensus to remain broadly stable.
Okay. Let me just follow up. I'm not sure I understood what you said about the Riccardo Tisci product. Also, should we expect that there will be a sort of orderly discontinuation? Or, you know, should we expect, you know, I don't know, any provisions to be made or anything like that? Thank you.
Yes. Thank you. Thank you for the question. Yes, we would anticipate an orderly progression. If you're thinking back to when Riccardo Tisci joined the business, there was a very significant change in the product because we were elevating the brand and we were elevating the product line. In this case, we anticipate a very smooth transition.
Obviously Daniel's debut will be coming through in February. He'll present his new aesthetic for the brand at the beginning of February, and the show obviously will be entirely his product, which will then be going into our stores from September onwards.
I think it's important also to say that the underlying business is in a much stronger position, so we've got around half of our range is continuity product, which will remain within the business. The newest element of our product range in total is around half of it. Obviously that's the element that will start to change, and it will move over to Daniel's product over time. Hopefully that's programmatic.
Thank you very much.
In terms of inventory, just coming back to your point about provision. We've managed the inventory very well, I think. I mean, COVID was a great example, I think, of how we've managed our inventory. The inventory turn is actually the best it's been for about a period of five or six years, and the aging of the inventory is also in the best position it's been for some time. I think overall, we can anticipate an orderly transfer over to Daniel's product, and we don't anticipate any significant excess provisions at all. We anticipate it being stable.
Thanks a lot.
Thank you. The next question is from the line of Chiara Battistini from J.P. Morgan. Please go ahead.
Good morning. Hello. Thank you for taking my questions. Can I just start maybe with China? You've mentioned that the beginning of the year has been encouraging. I was wondering if you could provide us more, with more color and more evidence of what you're seeing so far. You're gearing up into Lunar New Year as well.
The second question is on the U.S. I was wondering also there, if you could elaborate further on the dynamics you saw throughout the quarter in your Q3 and also whether as the comps are getting increasingly easier, whether you're expecting to start turning positive into at the beginning of this year and into this year. Thank you.
Thank you very much, Chiara. Just in terms of the beginning of the year with regard to China, as you know, we experienced a fall in traffic in December, originally. Infection levels were relatively high in the country. I think we obtained data from the Chinese Center of Disease Control, and they were quoting around 70% infection levels.
This immediately in December caused trading to be volatile. In fact, in our results, December was our worst month in the quarter in China, largely impacting footfall to stores, but also availability of our clients, our own client advisors. Net-net, in the third quarter, just to give you a bit of a data point, the traffic was down 40% in the third quarter in China.
The good news is, January has opened much more positively. We're seeing very promising signs. We've seen a total change in traffic, and we've seen some strong initial trade coming through. As you quite rightly refer to, Lunar New Year is earlier this year. It starts on the 22nd of January, whereas last year it started on the first of February.
I think we'll have a much clearer position on this once we're through the Lunar New Year period. The early signs are very positive, just in terms of trade, in terms of traffic, also in terms of the products, the higher AUR products that are being sold. Very importantly as well, clearly the Chinese consumer is very important nationally in mainland China, but also important in terms of the tourism that it can bring.
We provided some data points in the presentation just around the level of the Chinese consumer within our business, both pre-pandemic and post. The encouraging thing is traffic has started to increase in terms of overseas travel. We've had more Chinese consumers now moving into Hong Kong, and also Macau is showing very good signs, very good green shoots. I think the net-net effect is there are a number of key factors in favor with the reopening that we're seeing.
One is overall the market potential in China and the opportunity of the growth in the middle class. Significant accumulated savings with our Chinese consumers. Also, you know, policy easing. The Chinese government has recently released a guideline to expand domestic consumption and investment, including economic drivers such as housing, infrastructure, urbanization, supply chain, and foreign investment.
Net-net, whilst the near term could be changeable, the medium and longer term prognosis is extremely positive. Moving on to the next question relating to the U.S. First of all, we actually saw a quarter-on-quarter improvement in Q3 compared with Q2, so we were -1%. Actually, when you look at the months in the quarter, we saw an improvement through to December. In terms of the comps, they do get progressively easier. The comps were very tough for the U.S. market in the first half of the year. We do expect to see a shift in the comps there.
We're cognizant of the macro situation though, and we're also cognizant of the credit card data, the external credit card data that we pick up that shows a little bit more pressure building in the U.S. Our business results didn't show that, but we're cognizant of the external data.
Thank you. Just following up, you've mentioned in previous quarter, the softness at the enterprise point. Is that something that you continue to see, during the quarter and to a different extent versus the previous quarters or similar?
No, we do still see pressure in the enterprise categories and particularly, you know, the shoe business, the sneaker business essentially, that did very well in the prior period. The encouraging thing is we've seen further strengthening of the higher AUR categories. They've continued to perform well versus the prior year, particularly leather, and also, a shift in women's bags to higher price points within the female bag range and the newer styles.
Again, we're seeing this as very encouraging. Just to give you an example, Lola and the Birch Brown actually accounted for, you know, around about half of our leather sales in the United States. Very encouraging trends I would say.
Great. Thank you.
The next question is from a line of Louise Singlehurst from Goldman Sachs. Please go ahead.
Hi, good morning Julie and Julian. Thank you very much for taking my questions. If I could add 2 quick ones. A follow-up firstly on China. Julie, given the drop-off, particularly in December, can you just tell us about the inventory position and if there's any excess seasonal product that's left over and how that will be treated or dealt with?
Presumably, the pickup at the beginning of the new year is very welcome from that perspective. Secondly, just on back to the U.S. If we think about the U.S. consumer in the spending from tourism in Europe, can you just remind us when that really picked up? Was that Easter last year? Presumably you're up against fairly easy comparables on the tourism angle at the beginning of this year. Just the demand, the appetite, what that consumer from the U.S. is purchasing in Europe in terms of products and price points. Thank you.
Okay. Thanks, Louise. First of all, the China situation. We are actually really positive about the way we've been managing the inventory. I think actually the learning through COVID was actually very valuable in managing inventory across the world, given the volatility in trading patterns. We've adopted a policy whereby we've held more of the inventory centrally, so that you can see the trends in each of the regions and deploy the inventory accordingly.
That has been, you know, a difference compared with prior years. We've managed the process well. We've redistributed product to faster-growing regions in Asia and in EMEA. We're really not at all concerned about the inventory levels as we head into the year-end. If we do have excess inventory, we have basically redeployed some of the inventory to other relevant regions.
No concerns on that front. In terms of your second question, yes, certainly we found Americans continuing to shop in EMEA. We had this issue, well, not an issue, but just a change in trend or a change in trade, I should say. We had this also happening in the second quarter where we had a large number of American tourists coming into EMEA, and similarly really with the third quarter. In terms of product points, we're seeing real strength in leather.
EMEA, both EMEA and America as a country, have performed really well in leather. You've seen that we've just posted double-digit growth, including China. Net-net, I think we're seeing a transfer to higher AUR categories and the leather goods range, particularly Lola, the Birch Brown Check, Frances, have all done extremely well.
That's great. Thank you very much.
Thank you.
The next question is from the line of Thomas Chauvet from Citi. Please go ahead.
Good morning Julie and Julian. A few questions, please. Firstly, a follow-up on the phasing out of the legacy collections of, from Riccardo. How does it differ from five years ago? When I remember there was quite a bit of disruption, and it lasted for quite a while, when you had to clear the Christopher Bailey collection. What's really different this time? That's my first question. Secondly, on pricing, can you just talk a little bit about pricing in the calendar Q1 and how you intend to reduce the price gap between Europe and China and the U.S., given the boom in tourism you're enjoying in the region?
Just finally on the U.K., I think in a media interview this morning, Julie, you reiterated that Burberry would benefit from the tourist tax scheme. Just wanted to know how you, the discussion you, Harrods and other key participants are progressing with the government. Thank you.
Thank you very much, Thomas. Some good questions. First of all, with regard to the product and the difference compared with five years ago, I'd call out a number of major differences. The first one is, five years ago, we were undertaking a major transformation of the Burberry brand, which included a major change to the product line, a major change to the distribution that we had across the world together with the branding.
Therefore, when Riccardo joined us, there was a significant change that was required in the product line. You may recall we only had about a quarter of the business then in newness. Now we're in a much stronger position. We've got a very well-established, what we call carry-forward business.
Lines that have got longevity is approximately half of our range. That gives us stability through this period. The major elevation of the product line that was significant five years ago, I mean Daniel will bring for sure expertise in the areas he's very strong in, leather goods in particular, shoes for sure, as well as his expertise in ready-to-wear.
We don't see the change being as significant. We've been focusing on strengthening our collections, you know, over the past three to four years. I think that's the key first thing. The second thing is just the mix of the product, in terms of the items that we've got in the range that we see are having longevity, you know, will remain.
We expect those to remain strong and to continue to grow, you know, across the accessories lines and the ready-to-wear. I think, you know, as we mentioned, to one of the questions earlier, in terms of inventory, we don't see a major risk, and we see it being a relatively smooth transition. In terms of the next point about, pricing and tourism.
Taking the pricing point first, we have been, over the course of a while now increasing the prices. We started this in the fourth quarter of last year in terms of high single-digit price increases to our leather goods range, and earlier in fact in full year 2022 also.
We undertook a further increase at the beginning of this year across a sizable proportion of our rainwear and all of the jerseywear. In the middle of the year, there was a significant increase or mid-single digits, I would say, in the scarf range. Moving now into these more recent periods, obviously with spring 2023 going live, again, we've had a sort of high single digit increase in the pricing.
We are moving the prices accordingly, together with drawing out more efficiencies in the supply chain to offset the headwinds from inflation, and in particular around logistics and freight. To your point about the price gap, there is still a price gap and differential between America and EMEA.
This is one of the reasons we're getting increased tourists coming from America into EMEA. We keep this under review. We've decided not to make any regional changes to the pricing architecture at this point in time, apart from a modest amount in Japan. We keep it under review, and we'll continue to do so during the course of the next financial year. Thank you for picking up on the point about VAT RES and the retail export scheme. We've been engaging very strongly with the government and you may have heard from the CEO of Harrods on this as well.
We have seen that there has been a marked difference in tourist spend going into continental Europe versus the U.K., which is disappointing for ourselves and obviously clearly Harrods, being a major, you know, British luxury brand. Just to give you a little bit of data, versus our full year 2020, which was pre-pandemic, there's been a higher growth in U.S. tourists this quarter. We've seen a 102% lift in Europe, but only a 63% increase in the U.K.
The Middle Eastern traveler is even more stark. Versus pre-pandemic levels, they're up 122% in continental Europe, whereas they're only up 14% in the U.K. We would really like to change this and work closely with the government and our colleagues, with the fashion groups, really to make a change here, and introduce an incentive scheme.
Thank you. Thank you very much, Julie.
Thank you. Thank you.
The next question is from the line of Rogerio Fujimori from Stifel. Please go ahead.
Oh, hi, Julie. It's Rogerio from Stifel. I have two questions. Just with the mix composition in Q3 with less sales in China, lower sales in China and outdoor over-indexed in China, can you just confirm that you are comfortable and on track with the gross margin target of 70% at constant rates for the full year? Could you give us an idea of the contribution from volume in your 11% ex China comp? Thank you.
Okay. Thank you very much, Rogerio. First of all, on the gross margin, we are working extremely hard on the gross margin to maintain the 70% that we've guided. The reason for this largely, and you've hit the nail on the head, it's not only the inflationary pressure that we're seeing in raw materials, freight logistics, but it's also the switch of the business because we've now only got about 25% of the business in China.
Of course, the gross margins tend to be higher. They obviously have variable expenses going through OpEx, but the gross margin tends to be higher. Net net, it is a pressure on the margin. We're working very, very hard across both finance, commercial, merchandising, supply chain to maintain that 70% gross margin.
We're holding the guidance, but there's a lot of work. I wouldn't underestimate the amount of work that's going on in the business to preserve that. That's the first point. The second point, in terms of the business outside of China, we're absolutely delighted with how the rest of the business is performing.
We've seen real underlying strength in the business, and as you know, the first quarter we had outside of China, 16% growth, second quarter, 15% growth, third quarter, 11% growth. We're very pleased. It is a combination of volume increases, but also AUR. The AUR is a significant factor as we continue to elevate the brand, we continue to elevate the product line, obviously together with some price increases that have gone through in the period. Yes, a combination of both, but AUR is significant.
Thank you very much. All the best.
Thank you very much. Thank you.
Next question is from the line of Luca Solca from Bernstein. Please go ahead.
Yes. Good morning. This is Luca Solca from Bernstein. I have a couple of questions. You were referring to sneakers as a possible example of the enterprise product, being on the back foot and potentially the impact of inflation reducing the amount of discretionary spend in the lower part of the social pyramid. I wonder if that can also be a sign of a shift towards more formal footwear and apparel.
This seems to be the talk in the industry environment, with consumers going back to going out celebrating and wanting to look sharp. I wonder if you've seen anything like that in your sales as well, and if that could potentially mean, a tweak in the approach that Burberry has taken, with its streetwear emphasis under the previous creative director.
Yeah.
The second question is about manufacturing, if I may, and sourcing. I understand that you remain very flexible and that you could adjust through a significant recovery in luxury spend by Chinese consumers. It's early days. We don't know whether this is going to appear or not, but just wanted to confirm that this is indeed the case, and that you could potentially increase the amount of inventory that you have available if Chinese consumer demand rebounds in a similar vein to what we've seen in Europe and in America in the most recent two years. Thank you.
Thank you, Luca, for the questions. The first one, we agree. I mean, we've seen. If we compare ourselves with where we were during the pandemic to now, there has been a shift in what people are buying. The categories, definitely the higher AUR categories, the outerwear, the more elevated ready-to-wear together with certainly leather.
We've seen significant strength in leather, good double digits even including China. It indicates people are moving more towards formal wear. We also had a very good result as you've seen double-digit growth in women's ready-to-wear. Again, that is a very positive sign that people are changing their habits. They're going out far more and I think wanting to celebrate. Certainly festive was very strong for us as well.
We saw a strong trend coming through in December. Overall, totally agree with you. In terms of Burberry adapting its approach, yes, we anticipate having emphasis on, you know, the higher priced categories. We also anticipate revealing a much more balanced footwear offer, which will become evident in the February show.
I don't want to give away too much, but I'm sure it's going to become evident shortly. Yes, we're definitely moving in that direction. In terms of the inventory availability to support the China rebound. Yes, I mean, as you probably recall during COVID, I think we managed the business through a very turbulent time and we managed the inventory levels. We bought the inventory to the upside case.
We managed the cost base to the base case, and we actually managed cash at the time of the height of the pandemic to the downside case, just to ensure that we were protecting the business and we were agile to cope with a whole series of different scenarios. What we've done, and what we're in the process of doing, as we speak, is that we will increase inventory availability to support the rebound in the Chinese market.
We also are holding more inventory centrally so that we can respond to demands according to the regions in terms of how they develop. We're very much in terms of adopting agile inventory allocation, and that's put us in a very good position. The strongest position, I would say, for about five or six years in terms of inventory management.
Thank you very much indeed, Julie.
Thank you.
The next question is from the line of Carole Madjo from Barclays. Please go ahead.
Hi, good morning. I have two questions, please. The first one on the European market. Could you maybe come back a bit on the trends you have seen from the European cohort, so the locals especially? Have you seen any change in customer sentiment over there? Were they more cautious during the holiday season, for instance, or nothing much just like here?
That's the first question. The second one coming back on the Chinese market. You mentioned that you had seen a bit of tourism coming back from them, so spending abroad in Hong Kong and Macau notably. Do you see there any change in the way they spend in those other regions? Do they have a higher basket, a change in product they're buying or something like that? Thank you.
Thank you very much for the question. For the first one in terms of the UK market and the European cohort, we've actually seen, you know, strength and an improving position with regard to. First of all, if we take EMEA nationals, you know, strong performance in terms of EMEA nationals and, you know, very good strength in the third quarter.
We saw a single digit increase. Europeans were actually under more pressure, a little bit more pressure in the second quarter, and again have improved into the third quarter, Europeans as such. Very interestingly, British from the second quarter through to the third quarter have also improved. Just to give you a data point. In the second quarter, the British were -1%.
In the third quarter, the British have moved up to +2%. Again, encouraging. We, in terms of your question about cautiousness, we've been really, really, I guess, initially going into this quarter, somewhat concerned about press commentary and macroeconomic commentary around the UK in particular and EMEA. We didn't see any evidence of that in the buying patterns of what people were purchasing. We also saw a strengthening in Q3 as you go through the months.
December was the strongest in terms of compared with December last year, which indicates people were not being cautious and actually they were buying the higher AUR categories as well. Significant strength in leather goods and the Lola. You know, our Lola bag is a relatively high-priced product, relatively to some of the other bags in the range, and we saw them...
The Lola was one of the most successful products with all the festive activations that we did. I would say no sign of it yet impacting our business. As far as the Chinese market is concerned, we hope now that we'll start to see the improvement in tourism from the Chinese. I think first of all, we rely on the market itself, mainland China, recovering from the higher levels of COVID infection rates.
Really, we're seeing signs of green shoots because we're seeing, you know, increase in travel into Hong Kong, the increase in travel into Macau. These tend to be the first areas that will improve. Hainan is another one, it usually goes into the rest of Asia, it usually goes into Europe.
Certainly, when people travel into Europe from China, they do tend to buy the traditional Burberry trench because they want something to exemplify where they've been, and also the traditional Burberry scarf, the cashmere scarf. They tended to be extremely popular. That business fell away because of. We're happy to take the next question.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star followed by 1 on your telephone. The next question is from the line of Thierry Cota from Société Générale. Please go ahead.
Yes. Thank you. Good morning, Julie and Julian. Three questions for me. First, on wholesale. I think you mentioned in the past that Hainan was a big negative and drawback in the recent performance. I was wondering whether with the reopening of China and more local tourism actually, there was no scope for upgrading the full year wholesale guidance.
Secondly, you did mention on sales and EBIT, the change or no change of guidance on the FX tailwind for the year. I was wondering whether on gross profit, the impact would be unchanged also as on EBIT, or, on the other hand, slightly smaller, as on sales. The last point, now I know it's difficult for you to give numbers, but I shall try.
The improvement on store productivity coming from the refurbishment, can we get any sense of after versus before, or refurb stores in the country or in the region versus non-refurb store to get a sense of how much it brings extra sales productivity, please? Thank you.
Okay. Thank you very much. Taking the wholesale question first of all. In terms of the year, to start with the year, we've guided to broadly stable. The reason, the main reason for this, actually, the underlying trend in wholesale is actually very positive. The impact in why it's broadly stable is entirely due to the fact that we stopped shipping to Russia. Also the Asian travel retail market has been under a lot of pressure due to COVID. Hence the sort of broadly stable guidance. As Asian travel retail resumes, which we sincerely hope it will, then what we will see is the potential for wholesale to accelerate.
The, where I don't think it's going to occur this quarter necessarily, because obviously the order book is in and wholesale is fairly predictable just because of the timing in terms of their orders that come through to Burberry. However, you know, we would be very optimistic about this certainly next year. The other good news is that the reception that Daniel has had with wholesale clients is very, very compelling.
There's a huge amount of enthusiasm for his product when it becomes available. I think that addresses the first question. The second question was regard to foreign exchange. In terms of foreign exchange, I think you were looking at the gross margin in particular. Basically it will impact the gross margin.
We anticipate on revenue moving from GBP 170 million in the previous guidance foreign exchange benefit to GBP 160 million now at December 30th of December spot. In terms of the gross margin, we'd anticipate it being about GBP 5 million lower, so more or less GBP 135 versus GBP 140.
With the balance of the GBP 5 million going through OpEx, leaving us with the same profit upgrade from foreign exchange of GBP 70 million in both previous guidance and the current, the current rates that we're seeing. I think that addresses the foreign exchange question. Then in terms of the refurbishment of the stores, we have seen a number of key metrics.
When we compare the stores that have been put into the new store concept with the stores originally, either the store before or neighboring stores that are similar, then we've seen three key metrics that are beneficial. The first one is the stores are more productive by around 15%. We're seeing a higher AUR.
We're seeing an uplift of around 15%, and also we're seeing around a 13% increase in the basket size. Net-net, this is one of the reasons we are accelerating as far as possible the new store format rolling out, because what we find is when the product is seen in a new store format, the product also looks so much better, so it's a much better customer experience. We literally envisage increasing the CapEx into next year, as you know, to about GBP 200 million, which includes an uplift of around, up to about GBP 120 million for the stores in full year 2024.
Great. Thank you very much for the detailing.
Thank you.
The next question is from the line of Zuzanna Pusz from UBS. Please go ahead.
Good morning. Thank you for taking my question. I have just one, actually. Would you be able to tell us if you expect any meaningful margin impact from potential resumption of tourism, specifically from China? I think you mentioned earlier there was a question on the gross margin, and then you flagged that China has a higher gross margin.
Now, of course, we know that China also has more variable costs. I know that, you know, there's no rule of thumb in the industry. I think some of your peers with very large scale, they tend to flag they don't expect any negative margin implication, but maybe some of the companies with somewhat lower sales density, they flag that this could be somewhat more negative. Where do you sit in that debate?
Thank you. Thank you very much for the question. I think with China reopening, we anticipate there being positivity for the margin, gross margin and operating margin. Obviously, mainland China is beneficial when it reopens. The tourist business at the moment it's virtually, it's tiny. When tourism resumes and they come to other countries, we do expect an incremental improvement overall.
I think a much stronger base in mainland China together with obviously. I mean, I think the data we provided as part of the presentation, you know, it was, it was designed to sort of show the potential that we now have because before the pandemic, we had 40% Chinese. Just over half were shopping in mainland China and the rest were overseas.
Now we anticipate, you know, we're down to about 25% of our business, and this is clearly influenced by lack of tourists, and it's also influenced by lockdowns in China. There is a real potential when this opens up. Net-net, we would see this being positive for the gross, for the gross margin.
Excellent. Thank you. Just maybe to follow up, would you be able to tell us, on average, what is the differential in sort of fixed variable cost base between China and Europe? Because we're always told there's a bit more fixed cost base in Europe, but is there any sort of a ballpark number you would be able to share?
We haven't given that data specifically before, it's definitely true that in Asia, the Asian system tends to work far more with variable rent. Although the gross margin is higher, as the sales improve, it naturally, you know, if we don't change anything, naturally the variable costs within OpEx do rise. The variable proportion, if we just give you a little bit, I mean, variable proportion, if you take somewhere like EMEA or Americas, it's in the teens level as a proportion of the total cost base.
In China it will be much higher. It's around about a third of the OpEx base just in terms of the change. You do find that the gross margin is higher in China. The operating cost base, if you change nothing else, would be slightly higher in terms of proportions. Still, the profitability in that region is. It tends to be higher as a consequence of the pricing.
Great. Thank you. Sorry, I promise the last one. Can you say how much on average the gross margin is higher in China?
We haven't given the specific data on that. It's really a feature of the pricing.
All right. Thank you so much.
Thank you.
This concludes our Q&A session, and I hand back to Julie Brown for closing comments.
Thank you very much. Thank you to everyone for joining the call, and thank you very much for the questions and for the interactions that I've had with you over the past six years. I've really enjoyed working with you and look forward to seeing you again, if that's possible. Thank you.
Ladies and gentlemen, the conference is now concluded, and you may disconnect. Thank you for joining, and have a pleasant day. Goodbye.