Ladies and gentlemen, welcome to the Burberry third quarter trading update call. My name is Todd, and I will be coordinating your call today. If you would like to ask a question during the presentation, you may do so by pressing Star followed by one on your telephone keypad. I will now hand over to your host, Julie Brown, to begin. Julie, please go ahead.
Thanks very much. Good morning, welcome to Burberry's third quarter trading conference call, which have accompanying slides that are available on the IR section of our website. I will start this morning with some brief remarks on four areas. First, a recap of our strategic vision we shared in November. Second, a quick review of our retail sales growth in Q3. Third, our operational progress to date, and finally, the outlook. With me this morning is Charlotte Cowley, our Head of IR, and we will be happy to take your questions at the end. In November, we set out our plan to establish our position firmly in luxury by re-energizing our product, communication, and customer experience. This plan is underpinned by our operational excellence and people strategies.
This comes in the context of a changing customer who wants a combination of luxury and fashion. This means frequently refreshed but high-quality product with creativity across all categories. We have a clear strategy to address these changing dynamics. We are excited by what the future holds for our business. We have begun to make operational changes. However, this is a multi-year program. It will take time to implement Burberry's transformation. As we said, in the first two years of the plan, we expect revenue and adjusted operating profit to be broadly stable at constant exchange rates with growth from full year 2021 and will remain strongly cash generative throughout. Before I update you on operational progress, let me take you briefly through our retail performance in the third quarter. Underlying revenue was up 1% at constant exchange rates and down 2% at reported to GBP 719 million.
Comparable sales were up 2%, with Asia Pac delivering a mid-single-digit growth %, broadly consistent with the first half. Mainland China delivered slower growth as it annualized the start of the rebound in Chinese spending and with reduced promotional activity in the quarter. EMEA saw a low single-digit decline %. As expected, the U.K. declined given the exceptional 40% growth in spending in the same period last year. This was boosted by high tourist inflows, which continued through the year. Excluding the U.K., EMEA's performance was consistent with the prior quarter. In America, we had a low single-digit % growth, which is also in line with the performance in the second quarter. In addition to these geographic trends, we experienced a headwind from AUR due to product mix. Turning to our operational progress.
Over the last couple of months since we announced our strategy, we've begun to make operational changes within Burberry, and we're pleased with the early progress. Firstly, on product, we continue to see the fashion content within our offer outperform. We are preparing for the start of the transformation of our leather goods offer, with new styles launching from spring 2018. We're pleased with our expanded outfit offer. It's shown positive early results, with more customers buying complimentary trousers and skirts in addition to tops. Secondly, on communication. We've creatively collaborated with key influencers such as Kris Wu on social media platforms and with Blondey McCoy, who created three large-scale outdoor murals in downtown Manhattan for the Christmas season. Thirdly, the customer experience.
In retail, we are piloting a new in-store digital sales associate tool with enhanced functionality, such as allowing product searches by image or look, barcode, and the ability to track inventory across our global distribution network. In wholesale, we have started to have conversations with our U.S. and European wholesale accounts to explain our brand ambitions and our wholesale aspirations and to begin the discussion around the location and presentation in our points of sale. As an example of deepening relationships with digital third parties, we collaborated with NET-A-PORTER, creating a 14-piece exclusive capsule. Finally, underpinning all of this work is our focus on operational excellence and people. Burberry Business Services in Leeds opened in October as scheduled, a key new way of working for Burberry.
We've already filled close to 200 roles ahead of our plan, enabling the center to deliver elements of work across five major functions and some of our core end-to-end processes, including purchase to pay, sales order to cash, and hire to retire. We also launched a global engagement program to equip our employees with the knowledge and the tools required to deliver our strategic priority. Finally, turning to guidance. There is no change to our outlook for operating profit at constant exchange rates, and we are on track to deliver the GBP 60 million of cumulative cost savings in full year 2018. We continue to expect currency to be a GBP 20 million headwind to operating profit in full year 2018, with a benefit of around GBP 15 million expected on the top line.
In full year 2019, our initial indications are that currency will be a GBP 25 million headwind to operating profit versus full year 2018. You will have also seen that we've made a preliminary comment on the recently announced U.S. tax changes. We will provide more detailed information at the prelims in May, but currently estimate that we will see a one-off non-cash tax charge of GBP 10 million-GBP 15 million in our full year 2018 income statement relating to the revaluation of net deferred tax assets, and this will not impact adjusted EPS. There is no change to our guidance for the effective tax rate on adjusted profit for this or the out years. Finally, just to update you on the share repurchase program, we have repurchased GBP 242 million of the GBP 350 million total share buyback that we've committed to complete by the end of March 2018.
To conclude, there are 2 phases to Burberry's transformation, build the foundations before accelerating and growing. We're right at the beginning of this multi-year journey. There is a lot of work to do, but we are pleased with the early progress we've made, and we remain focused on our goal of positioning Burberry firmly in luxury and delivering long-term sustainable shareholder value. With that, Charlotte and I, we're happy to take any questions.
Our first question is from Helen Brand calling from UBS. Helen, please go ahead.
Hi, good morning, Julie and Charlotte. First question please is on the Chinese consumer. Would it be fair to assume that that nationality globally was flat in the quarter after around mid-single digit in H1? Obviously, you flagged some tougher comps, but peers still seem to be reporting pretty strong Chinese consumer trends. What do you think is the reason for the slowdown? Secondly, just wanted to see if there were any actions in terms of the turnaround plan since we all last spoke, particularly with respect to timings and scale of the wholesale store or retail closures and also any refurbishments. Any update you can give us on pricing architecture of the offer and how that's changing. Finally, no updates in the release today on the search for creative director. How soon before you think you can make an announcement on that? Thank you.
Thanks, Helen. In terms of China, taking your three questions. In terms of China, we did see a deceleration in Q3. We saw very strong growth in the first 2 quarters, but we saw a flatter picture in Q3. Obviously, we were up against some very tough comps. The second half of the year got a much tougher base. In terms of Chinese consumers, we were actually negative in half 1 2017, positive in the second half. The Chinese consumer overall, obviously the population is both the spend at home, but also the spend abroad. In terms of spend at home, it was impacted by the fact that we reduced promotional activity ourselves in China. In China, the Burberry brand is extremely strong.
The brand heat is very strong. We decided to reduce promotional activity, and that impacted our sort of spend at home local Chinese results. In terms of the traveling consumer, we saw a reduction in traveling consumer trade across the world, and in particular in the U.K. was impacted by that. That's China. In terms of the turnaround plan, no major change at all. Obviously, the strategy was only announced about nine trading weeks ago. No change to the plans we've got in wholesale, retail. We've had very good early dialogue with the wholesalers, both in the U.S. and in Europe, in terms of how we position our brand in the store and the point of sale. Those initial discussions have gone very well, but no change to any of the guidance really that we've given in that regard.
We're still anticipating a sort of mid-single digit reduction in wholesale and the retail footprint, we're broadly happy with it. We don't anticipate any change in space. The refresh, the store refresh plan that we talked about in November is progressing. The concept's been approved. We expect that to roll out from towards the end of this financial period. In terms of price architecture, no change to the plans really at all. There'll be no change to existing prices as such. What we expect to do is, in particular in emphasizing more leather goods and handbags, which we expect to start from the spring of next year. There will be a degree of impact on price as we go through the five years of the strategy. I would emphasize that these things do take time.
This is a multi-year program. It takes a while to build a full leather goods offering that we've got in mind. In terms of the third element, the creative, obviously we're pleased with the progress. Marco's leading the search, and that's progressing well. Nothing to announce on in terms of timeline at this point. Obviously the time at which the person would join would depend on non-compete periods. Important to say that Christopher is still leading the February runway show. He leaves the board at the end of March and will continue to support us as needed throughout 2018.
Great. Thank you. Just to follow up on refurbishments. Any ideas on which stores you plan to go for first? Any impact on fiscal 2019 numbers at this stage?
In terms of the refurb program, we're focused on the major cities. We'd certainly expect to see Bond Street being one of the first ones. Yeah, the major cities are the area of focus. We've got eight in line with our first wave, and we're progressing that accordingly. It's the major cities where the big influencers are, in terms of Bond, New York, et cetera, L.A. The second part of your question, too, is the physical space. I think in terms of physical space, we expect no change in net space. We've had a minus one this quarter, but it's largely just due to two main lines closing, two opening. It's just the titration of the space as we move, in some cases, to more elevated positions, which is our intention as part of the strategy.
Great. Thanks so much.
Thanks, Helen.
Our next question is from John Guy calling from MainFirst. John, please go ahead.
Thanks very much. Good morning, Julie and team. A couple of questions, please. Maybe just starting with the 2% LFL, if you could break that out, volume, value contribution. It seems like the value contribution was obviously negative. If you could comment on outerwear. It does seem that besides, I think, some specific collections like the Doodle Collection example, which I think has done well, outside of that, within the heritage DNA outerwear, it seems like there's been a further deceleration. Could you comment on how you see that particular landscape vis-a-vis the competitors and your price points? Then on China, maybe just thinking about Mainland Chinese growth. You've annualized the impact of Beijing, mid-single digit. Does seem a little bit disappointing, to be honest. Could you maybe just talk about how much you've reduced your promotional activity in China?
I think you've made earlier steps to effectively cut out some of the promotional side of things and cut prices in some markets, raised prices in others, namely in Hong Kong and other areas. What exactly are you doing in mainland China today? Thanks very much.
Okay. Thank you. Just in terms of the 2% comp, as you say, we won't break out the sort of specifics of volume and value. The AUR impact in the quarter did have a meaningful impact in the context of the 2%. Volume growth was actually underpinning it was strong, and we've seen very good growth from our customers, our elevated customers. We've seen good growth from existing customers. In terms of other elements of the equation, we saw continued pressure on footfall overall, but our conversion was good, and in particular, it was very good in Asia Pac and in the U.S. EMEA was somewhat challenged by the tourist impact in the previous year, but conversion in the other two regions was very strong. Yeah, the AUR impact is there on the basis of the 2% comp, but we won't give out the individual numbers.
In terms of the outerwear performance, we were expecting this slight movement in the quarter and probably will also happen in Q4 as well. We are pleased actually with some of the innovative areas of the outerwear range and how well it has performed. You mentioned the Doodle Collection, and we will be continuing to refresh the outerwear range coming in from March. As you know, we've had very good success with the Tropical Gabardine range that we launched about nine months ago now. We are finding generally that newness innovation is what is driving the consumer and the market. Certainly, the range in terms of puffers and quilts did very well in this quarter also. Just moving on to China, in terms of what's happened there with the mid-single digit.
The first thing to emphasize with China, this is the country as opposed to the population across the world. In terms of the country, we're actually really pleased with how we've performed overall in China. We have got just into double-digit growth rate if you look at the year-to-date numbers. I don't think we should take a single quarter as indicative of what's happening. We've overall got a very good result year-to-date in China. In terms of specifics that have affected this quarter, we had price reductions made in September and November last year, so that obviously has an impact on AUR. We were up against a very tough comparator base, both in China and with the Chinese population, because the population as a whole were influenced by sterling weakening and coming to the U.K. to shop.
This is one of the reasons we saw a deceleration in the Chinese as a nationality through the 3 quarters. Overall, Chinese as a nationality year-to-date, we've seen mid-single-digit growth globally. Positive overall in that sense. I would stress that the Chinese are still a very important part of our business, still 40% of our business, and therefore a much valued customer group.
Thanks, Julie. Maybe just on that, I think your comps were high-single-digit in mainland China, double-digit excluding Beijing last year. I appreciate that there's a bit of a comp effect there. Just going back to the outerwear. Doodle Collection and Tropical Gabardines aren't really going to drive your full trench coat offering. I'm just trying to get a little bit more granularity, please, around the fact that it seems as if outerwear was down mid-to-high single-digits. Could you just confirm that, please?
Yeah. No, it wasn't high-single-digits. We can come back to you with the number, but no.
Yeah. John, I think what we're saying is that we're very pleased to see the positive results from the outfitting. Clearly the fact that tops, bottoms, trousers, skirts performing well, but clearly they tend to be a lower price point product than something like a trench coat or a bag, both of which are categories where you'll see more innovation coming in the future rather than in this quarter.
Yeah. I think John, the final-
Thanks very much indeed. Oh, sorry, go on.
John-
Sorry, go on, Julie.
Sorry. I think I may have mentioned it with Helen's question. We did have this reduction in promotional activity. We haven't given the exact percentage it's impacted the result in China. We wanted to protect the strength of the brand in China and therefore did have a reduced promotional activity which affected the growth. The mainline remains strong. Obviously, we don't split mainline and other data. The mainline was very strong also in the third quarter in China.
That's very helpful. Thank you very much indeed.
Okay.
Our next question is from Thomas Chauvet, calling from Citi. Thomas, please go ahead.
Good morning, Julie, Charlotte. Three question, please. The first one, coming back to China and the reduced promotional activity. Are there any other markets that you've identified where you'd like to follow a similar strategy, maybe as part of your five-year plan and your brand elevation strategy? Related to that question on promotions impact on LFL, could you perhaps give us an indication whether at group level, outlets have generally performed better in the Christmas quarter than full price stores, or maybe slightly differently, whether your full price store LFL globally were positive in the period? Finally, on your unchanged FX headwinds of GBP 20 million, that was struck at the end of December. Obviously, the pound was 5% lower than current spot for the USD, I think nearly 10% lower for the EUR.
Could you give us your maybe best estimate for FX in FY 2018, based on those much higher spot rates? Perhaps comment a little bit on FY 2019, at least directionally, given we're not going to hear from you until May in your full year results. Thank you.
Okay. If I take the China promotion and other markets, if Charlotte could take the promotional impact on LFL.
You normally wouldn't give a position on that. Then thirdly, I can come back on exchange. In terms of, yes, a key part of our strategy is clearly, as we explained, to remove or reposition some of the non-luxury elements within our distribution. Clearly that goes hand in hand with our own retail network and what we do with promotions in our own retail network. What we want to do is keep all the channels in complete synchronization through retail through to wholesale. We would expect, over the course of the plan, to reduce our own promotional activity. In this quarter in particular, we were only really calling out China, because in the U.S., we decided to move really with the peers in this period because the peers went early with their sale period this time.
Yeah, I think over time you're going to see us reduce promotional activity in line with the changes we're making from non-luxury elements of the distribution channel. The second question, Charlotte, for you?
Thomas. We're not going to start digging into those different performances of different channels in retail in terms of the comp. Clearly, all the strategies are looking, focusing on driving our mainline performance and clearly firmly positioning ourselves in luxury. That's where we're really spending our time.
Moving on to foreign exchange in terms of the overall impact. Obviously, what we've got in the results is the effective rates, which we've included in the appendix. We ran the final quarter through at the end of the period spot rates to see the impact. This is where we've seen no change to the previous guidance, which was the -GBP 20 on profit, GBP 15 positive on revenue. Because we noticed some models were a little bit out on that, we decided to try and provide a bit more guidance on the revenue foreign exchange impact, which is GBP 15 positive. Next year, we're giving this heads up that we're expecting -GBP 25 on the profit. This is coming from a combination of an adverse revenue movement together with hedges rolling off and further adverse cost of goods movement from exchange, partially offset by a benefit from expenses.
We haven't run the exchange model again. I think we operate with about 28 currencies. We haven't run the exchange model again for the latest spot. We've only run it at the end of December. We could update you further should exchange rates move again more seriously, but we wouldn't anticipate doing that at this stage. Obviously, we provide further guidance in May.
Thank you, Julie.
Thank you.
Our next question comes from Mario Ortelli, calling from Bernstein. Mario, please go ahead.
Good morning. Three questions from me. The first one is on the appointment of the creative director. You mentioned that the process is ongoing, and the potential candidate can also have a non-compete agreement with other companies. In the industry, it is not uncommon to see a gardening leave period for creative designer of one year. Can we expect that your company will not have a creative director even for all year 2018, and the appointment will be at beginning of 2019, or we should expect by far faster timing? The second is on wholesale. You mentioned that you've got very positive talks with the wholesaler regarding the repositioning of Burberry. Can you give us an idea on when you think that wholesale will increase? After the appointment of the creative director, when you will have these new handbags?
It seems that now the trend is for a progressive decline of wholesale sale. The third question is about the AUR that was the add-on this quarter result, and from what I've understood from your words, maybe I'm mistaken, especially from outerwear and leather goods. Can you tell us if I'm right on the product categories and this AUR decline, in which countries or geographies was especially strong? Thank you.
Okay. No problem. If I take the first two.
In terms of creative and wholesale, and then Charlotte can come back on the regional distribution and the AUR point. In terms of the creative, we have no further comments really on that. The process is underway. We're making good progress. It really does depend on the non-compete. In terms of what we've got in place, in the meantime, clearly, we have got a strong design team that currently works under Christopher. Christopher will be responsible for the February runway, that's making great progress, and continue to support the organization. I would refer to the strength of the design team that Christopher's built over the years. Clearly we'll announce the creative as soon as we possibly can on that. I think it's really important to say that Marco's emphasis on this is to find the right candidate.
Not to feel the pressure of time, but to find the right candidate for the business because it's such an important decision for the brand. In terms of the wholesale and the timeframe, yes, we will run this over a period of time because the wholesalers are a really important part of the sales of our business. The wholesale business is a great way of introducing new consumers to Burberry who go into department stores, as you know. Therefore, we want to retain the partnerships with the wholesalers. What we're doing is having the dialogue about how we want to position the brand, where we want the point of sale to be in the department store, which floor, what are the adjacencies. Those discussions are going well, but obviously it takes time to do this. We're anticipating the second half, a mid-single digit decline.
Next year, we're anticipating a mid-single digit decline. Obviously, with that result being probably a little bit more pronounced in the U.S. than it is in Europe. It's early days at this stage, but the dialogues have been going very well. The U.S. wholesalers do appreciate where we're coming from, and they appreciate the brand strategy that we have. In the EMEA accounts, we have closed some accounts already in the dialogues with some of the EMEA wholesalers. Of course, there are many, many more wholesalers across Europe than there are in America. We've managed to do that already because some of them were clearly non-luxury. I think good progress, but early days. We'd see this happening over a two-year period. AUR.
Yeah, and then AUR by region. There's a little bit less of an impact in Americas, but nothing really significant to call out between the three different regions in terms of the AUR trend.
Thank you very much. Julie, you referred just on wholesale, a bit of rationalization of doors. Can you give us an idea of how many wholesale doors globally do you currently have?
We haven't given that data before. No.
The number of doors, it varies significantly. You can have a large number of very small accounts in one market and actually one partner in another region that could be a significant portion of revenue. I think I'd probably use our commentary on the revenue guidance rather than focus on number of doors.
Thank you.
Thank you.
Our next question comes from Elena Mariani, calling from Morgan Stanley. Elena, please go ahead.
Hi. Good morning. A couple of follow-up questions from me, please. The first one is about your exit rate from this quarter. Thinking about sector trends, it feels like comp is becoming even tougher, going into the new calendar year. Is there anything that you can share with us in terms of how things have been developing in the early part of 2018, and whether you expect the softness that we've seen sequentially, Q3 versus Q2 to continue. Secondly, could you remind us what's the U.K. in terms of percentage of total sales as of today? Finally, one question again on promotional activities. Given what you're expecting to do in the next few months and quarters, how should we think about the impact on gross margin?
I know you've guided towards pretty much flat EBIT margin for the next couple of years, but do you think we could see some pressure there given what you have observed in terms of early results from this new strategy? Thank you.
Mm-hmm. Okay. Thank you very much, Elena. Just running through those. In terms of the exit rate, as you say, we do anticipate, the second half of last year was a lot stronger for Burberry. We did have this impact in the U.K., which will extend, obviously, into the next few quarters. We would expect the comp to be tougher, and therefore that will affect our Q4. We expect it to affect the Q4 results. Certainly, the Chinese performance continued to improve between Q3 and Q4. There was a considerable strengthening in China. Yes, those two factors will certainly affect our comp in the first quarter. The AUR, the product mix, is also likely to run through because it runs by season. We're also expecting an AUR impact in the fourth quarter as well.
In terms of the U.K. percentage of total sales, it's 11% at the moment. It was around the 10-ish mark, but it's 11%. In terms of promotional activity impacting margins, we will see a positive impact. We've seen a positive impact in Asia from the reduced promotional activity. Net net, we'd expect, on an underlying basis, to see some improvement in the gross margin. This is on an underlying basis before exchange, but exchange, because of the hedges rolling off, has a negative impact on our gross margin this year compared with last. Net net, constant exchange rate underlying improvement in gross margin, but net net, I think post exchange, it's likely to be neutral, would be our guidance overall on gross margin.
Thank you. Thanks a lot.
Thank you.
Our next question is from Ashley Wallace, calling from Bank of America Merrill Lynch. Ashley, please go ahead.
Hi. Actually, all my questions have been asked, so maybe just one follow-up quickly if I can. Just in terms of the FX headwinds that you're talking about for 2019, the GBP 25 million, are you able to give us any more color around the mark-to-market at current rates in terms of the quantum of that?
No, we can't. I think we're just trying to give you an early indication because it just looked like not many people had really sort of sought it, looked to us from our read of the numbers about the FX. We thought we'd guide on scope clearly at the end of December, and we've still got to finish this year before we can firm up numbers. We'll give you a clearly better guidance in May.
Okay, sure.
Our next question is from Antoine Belge, calling from HSBC. Antoine, please go ahead.
Yes, good morning. Three question, please. First of all, following up on your comments about this outperformance of certain categories and also implying that trenches underperformed. Is that something that you've been driving? That's at least my understanding, and is this something that should basically be visible in the next three quarters? Second question on the U.S., I think it was a part of the world where we've been quite happy with relative improvements, maybe a word on the U.S. and also some qualitative comment about what's happening in your retail store network and outlets, et cetera. Finally, maybe looking at consensus PBT. I understand you don't want to comment or quantify the additional headwind pressure coming from the move from $131-$138 pound since the closing. Was this 2% like for like in line with your own expectation, or was it a bit disappointing?
We would need to maybe take that into account in our estimates. Do you think that you can have mitigating factors against that? Thank you.
Thank you very much for the questions, Antoine. In terms of categories, it's all about the relative performance of the categories, obviously in the quarter reflected in the comp. We did see a good performance in areas overall, like rainwear was strong. It's just that the relative proportion of the performance of the tops and the bottoms following on from the work we've been doing on outfitting and looks has made a bigger difference in this particular quarter, which has really driven the point on AUR. Obviously the strategy is multi-year. The leather goods component of what we intend to do strategically will start to take effect from the spring, but it obviously takes a while to get the results going through the comp on this.
In terms of the second question you raised about U.S., we have seen an improvement in the U.S. as we've been from Q1 to Q2, we saw an improvement. We got low single-digit growth in the U.S. in Q2, and we've repeated that in Q3. Overall, the highlight that we get in the U.S., our U.S. performance, is really down to the work that the team have been doing on conversion and the retail excellence program, driving the clienteling, driving the returning of top customers, and also just the conversion is very strong in the U.S., one of the strongest performances we've got across the world, and that's been very good. In terms of the third question relating to exchange, we've covered. In terms of 2% like-for-like, was it in line with our own expectations? It was in the bounds.
We obviously do forecast at different levels of scenarios, it was within the boundary of what we were looking at in terms of that. Just on the foreign exchange, just to clarify, the 131 is the effective exchange rate for the nine-month period in 2018. We've used the rate at the end of December and replicated that for the fourth quarter to give us a full-year effective rate. Just to explain how we've done that. When we do the full year 2019 calculation, we take the full year at the spot rate at the end of December. That's what we've done.
Thanks for this precision. All in all, that consensus PBT number, in your view, there is no significant change to be expected?
Yes, I think broadly, we're comfortable. The only thing is we've still got some of our analysts are at the higher end of that range. Probably didn't have the opportunity to fully reflect some of the guidance we'd given. Therefore we would expect some of the people at the top end of that range to move down.
Thanks. That's very clear. Thank you.
Okay. Thank you.
We currently have no further questions. As a reminder, please press star one to ask any questions. Our next question is from Zuzanna Pusz calling from Berenberg. Zuzanna, please go ahead.
Good morning, Julie and Charlotte. I have just two remaining questions. First of all, on the new products. If I understood correctly, the new handbags offering under the creative direction of Sabrina Bonesi will come into stores in Q1 FY 2019. Is that right? In terms of, I appreciate that it may be probably a bit too early to share any specific details, but can you give us any idea in terms of how significant this could be? Can we expect, let's say, a completely new model or just generally a refresh of your existing range? Do you expect any sort of major marketing push behind that? Just secondly, a small follow-up on the U.K. I understand that the big part of the weakness was obviously driven by the tougher comparable basis because of the tourism.
Can you make any comments on the domestic consumer? Have you seen any notable weakness? I'm referring specifically, I think there's been some comments made to the press earlier today that there's been some trading down observed in the region. Thank you.
Okay. Sure. Taking each of those. Yes, we do. The key thing with the handbags is we want to build out a full architecture of handbags so that we're looking at different functions, different usage. Day, evening, different sizes, different functionalities. We want to bring that out fully. We will initiate the beginnings of that from March 2018. You'll start to see the first launches from that. I think it's important to say that it's all about building and also having stability in the range in terms of handbags over time. That's basically the strategy. In terms of the new models that we may expect to see, we will see a new model being launched in March, which we're very excited about.
The main emphasis that we've got is really around, that's the start of the new product range, and it's building out the offering over time. We see this as a long-term way of building a sustainable leather goods business, not a short-term, one product type approach. That's the really important thing to say. In terms of the U.K. in particular, in domestic U.K., the domestic data does indicate also a slowdown in the third quarter. However, a very big caveat around our U.K. domestic data. What we record when a consumer purchases from Burberry is the home address, and that dictates whether we're attributing the person to U.K., domestic or overseas. Quite often people have second homes, and therefore, we could pick them up in our database as a U.K. national, but they may not be. They may have a second home or be still a tourist.
In our database, what we've got is about 90% of our U.K. population is based out of London and Heathrow, so there's probably a large tourist component to that or a traveling consumer to that. Although we've seen a weakening in the third quarter in domestics, it's highly likely to have been influenced by tourist trade, I should imagine.
Okay.
In terms of, I think, some of the press commentary, it's really all around the mix, the product mix in the quarter. What we were doing is obviously giving analysts and investors more of an insight into the 2% comp by referring to the product mix, which had impacted the AUR. I think that's what you're finding, the press will pick up on.
Perfect. Thank you very much. That's helpful.
Okay. Thank you.
Our next question is from Rogerio Fujimori calling from RBC Capital Markets. Rogerio, please go ahead.
Well, hi. Good morning, Julie. Good morning, Charlotte. I think in the press release you refer to good digital sales growth, and I appreciate you don't disclose specific numbers. It's such an important driver for Burberry, so I was wondering if you could qualitatively talk about how growth contribution from e-commerce in Q3 compared to the first half. Could you give us an idea of how much e-commerce contributed to growth in Asia? Could you confirm that your e-commerce penetration in Americas is still double the global average? Thank you.
Okay. I think Charlotte will take this.
Yeah. Yes, we did see, it was nice to still see digital performing strongly for us. The growth was led by Asia, so that was the strongest growing part of our digital business. As you know, we've had a focus on sort of localization efforts, particularly in Asia. It's nice to see that working for us. As you say, yes, the U.S. is still sort of the most penetrated market for us for digital.
Thank you. Was the growth contribution from e-commerce in Q3 comparable to the first half?
Yeah, it was very similar.
Okay. Thank you.
We currently have no further questions registered. I'll hand back to you, Julie.
Okay. Thank you very much. Thank you for your questions and for joining our call. Just to close, we're right at the beginning of a multi-year journey. There's a lot of work to do. We're pleased with our early progress, and we remain focused on positioning Burberry firmly in luxury and delivering long-term and sustainable shareholder value. We look forward to updating you at our prelim results, which are going to be held on the 16th of May. Thank you very much.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.