Ladies and gentlemen, welcome to the Burberry Third Quarter Trading Update Call. My name is Todd, and I'll be coordinating your call today. I will now hand over to your host, Judy Brown, to begin. Judy, please go ahead.
Thank you very much. Good morning, and welcome to Burberry's 3rd quarter trading conference call, which are the accompanying slides that are available on the IR section of our website. I'll start this morning with some brief remarks on 4 areas. 1st, a recap of our strategic vision we shared in November. 2nd, a quick review of our retail sales growth in Q3.
3rd, our operational progress to date and finally, the outlook. With me this morning is Charlotte Cowley, our Head of IR, and we'll be happy to take your questions at the end. In November, we set out our plan to establish our position firmly in Luxury by reenergizing 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, and this means frequently refreshed but high quality products with creativity across all categories.
We have a clear strategy to address these changing dynamics and we're excited by what the future holds for our business. We've begun to make operational changes. However, this is a multiyear program and it will take time to implement Fairbridge transformation. As we said, in the 1st 2 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. Now before I update you on operational progress, let me take you briefly through our retail performance in the 3rd quarter.
Underlying revenue was up 1% at constant exchange rates and down 2% at reported to GBP 719,000,000. Comparable sales were up 2% with Asia Pac delivering a mid single digit growth percentage 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 percentage and as expected, the UK 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 UK, EMEA's performance was consistent with the prior quarter. In Americas, we had a low single digit percentage growth, which is also in line with the performance in the Q2. And 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. And we're pleased with our expanded outfit offer. It's shown positive early results with more customers buying complementary trousers and skirts in addition to top.
Secondly, on communication, we've creatively collaborated with key influencers such as Chris Wu on social media platforms and with Blondie McCoy, who created 3 large scale outdoor murals in downtown Manhattan for the Christmas season. And 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. And 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 5 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 $60,000,000 of cumulative cost savings in full year 2018. We continue to expect currency to be a $20,000,000 headwind to operating profit in full year 2018 with a benefit of around $15,000,000 expected on the top line. In full year 2019, our initial indications are that currency will be a GBP 25,000,000 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 $10,000,000 to $15,000,000 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 outer years.
And finally, just to update you on the share repurchase program, we have repurchased 242,000,000 dollars of the $350,000,000 total share buyback that we've committed to complete by the end of March 2018. To conclude, there are 2 phases to Burbridge transformation: build the foundations before accelerating and growing. And we're right at the beginning of this multiyear 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. And with that, Charles and Hayd, 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. So what do you think is the reason for the slowdown?
Secondly, I 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 door or retail closures and also any refurbishments? And any update you can give us on pricing architecture of the offer and how that's changing? Finally, no update in the release today on the search for Creative Director. How soon before you think you can make an announcement on that? Thank you.
Okay. Thanks, Alan. So in terms of China, taking your three questions. In terms of China, we did see a deceleration in Q3. We saw very, very strong growth in the 1st two quarters, but we saw a flatter picture in Q3.
I mean, obviously, we were up against some very tough comps. So the tougher the second half of the year got a much tougher base. We were actually in terms of Chinese consumers. We were actually negative in half one twenty seventeen, positive in the second half. The Chinese consumer overall, obviously, the population is both the spend at home, but also the spend abroad.
And 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 So we decided to reduce promotional activity and that impacted our sort of spend at home local Chinese results. And in terms of the traveling consumer, we saw reduced a reduction in traveling consumer trade across the world and in particular in the UK was impacted by that. So that's China.
In terms of the turnaround plan, I mean, no major change at all. Obviously, the strategy was only announced about 9 trading weeks ago. No change to the plans we've got in wholesale, retail. So 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. And 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 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 has been approved and 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. We expect to see a change there'll be no change to existing prices as such. But 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 5 years of the strategy. But I would emphasize that these things do take time. This is a multiyear program, and it takes a while to build a full leather goods offering that we've got in mind. In terms of the 3rd element, the creative, obviously, we're pleased with the progress. Marco is leading the search and that's progressing well, but nothing to announce on in terms of time line at this point.
And 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 a follow-up on refurbishments. Any ideas on which stores you plan to go for 1st? And any impact on fiscal 2019 numbers at this stage?
So 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. So yes, the major cities are the area of focus. We've got 8 in line with our first wave and we're progressing that according to but it's the major cities where the big influences are in terms of bonds, New York, etcetera, L. A.
And 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 1 this quarter, but it's largely just due to 2 main lines closing, 2 opening. So 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 Sketch example, which I think has done well. And outside of that, within the heritage G and A outerwear, it seems like there has been a further deceleration. So could you comment on how you see that particular landscape visavis the competitors and your price points? And then on China, maybe just thinking about mainland Chinese growth, you've annualized the impact of Beijing mid single digits. It 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 raise cut prices in some markets, raise prices in others, namely in Hong Kong and other areas. So what exactly are you doing in Mainland Shire today? Thanks very much.
Okay. Thank you. So just in terms of the 2% comp, as you say, we won't break out the sort of specifics of volume and value. But 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. So yes, 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. So you mentioned the doodle sketch, and we will be continuing to refresh the outerwear range coming in from March.
And as you know, we've had very good success with the tropical gabardine range that we launched about 9 months ago now. We are finding generally that newness innovation is what is driving the consumer and the market. And certainly, the range in terms of puffers and quilts is very well in this quarter also. So just moving on to China in terms of what's happened there with the mid single digit. I mean, 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. So 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 November last year.
So that obviously has an impact on AUR. And 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 UK to shop. So this is why one of the reasons we saw a deceleration in the Chinese as a nationality through the 3 quarters. Overall, Chinese and nationality year to date, we've seen mixed mid single digit growth globally. So positive overall in that sense.
I would stress that China is still Chinese is 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. So I appreciate that there's a bit of a comp effect there. Just going back to the outerwear, I mean your doodlesketch and tropical gabardines aren't really going to drive your full trench coat offering. So I'm just trying to get a little bit more granularity, please, around the fact that I mean, it seems as if outerwear was down mid to high single digits.
Could you just confirm that please?
Yes. No, it wasn't high single digit. I mean we can come back to you with the number, but no.
Yes. And John, I think what we're saying is that we're very pleased with the very pleased to see the positive results from the outfitting. So clearly, the fact that tops, bottoms, trousers, skirts are 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. Yes.
I think, John, this is
the final one. Thanks very much indeed. Sorry, go on, Giulia.
Sorry. No, I just I think I may have mentioned it with Helen's question, but we did have this promotional reduction in promotional activity. We haven't given the exact percentage it's impacted the results in China, but 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, but the mainline was very strong also in the Q3 in China.
That's very helpful. Thank you very much indeed.
Okay.
Our next question is from Thomas Chabat calling from Citi. Thomas, please go ahead.
Good morning, Julie, Charlotte. Three questions, 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 5 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? And finally, on your unchanged FX headwinds of £20,000,000 that was struck at the end of December.
Obviously, the pound was 5% lower than current spot for the USD and I think nearly 10% lower for the euro. 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. So if I take the China promotion and other markets, if Charlotte could take the promotional impact on NFL, we only wouldn't give a state on that. And then thirdly, I can come back on exchange. So in terms of yes, I mean, a key part of our strategy is clearly, as we explained, to remove or reposition some of the non luxury elements within our distribution. And clearly, that goes hand in hand with our own retail network and what we do with promotions in our own retail network.
So what we want to do is keep all the channels in complete synchronization through retail, through to wholesale. So we would expect over the course of the plan to reduce our own promotional activity. In this quarter in particular, we were only 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. So yes, I think over time, you're going to see a reduced promotional activity in line with the changes we're making from nonluxury elements of the distribution channel.
So the second question, Charlotte, for you?
Yes, Thomas. I mean, we're not going to start digging into those different performances, the different channels in retail in terms of the comp. Clearly, all the strategies are looking, focusing on driving our mainline performance and fully firmly positioning ourselves in Luxury. So that's why we're really spending our time.
Yes. Moving on to foreign exchange in terms of the overall impact. What we obviously, what we've got in the results is the effective rates, which we've included in the appendix. And then we run the final quarter through at the end of the period spot rate to see the impact. This is where we've seen no change to the previous guidance, which was the minus 20 on profit, 15 positive on revenue because we noticed some models were a little bit out on that.
So we decided to try and provide a bit more guidance on the revenue foreign exchange impact, which is 15% positive. Next year, we're giving this heads up that we're expecting minus 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 benefit from expenses. We haven't run the model 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. But we could update you further should exchange rate 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 a creative director. You mentioned that the process is ongoing and the potential candidate can also have a non compete agreement with the companies. In the industry, it's not uncommon to see a garden in release period for creative designer of 1 year.
So can we expect that your company will not have a creative director even for all year 2018 and the appointment will be at beginning 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 wholesale regarding the repositioning of Burberry. Can you give us an idea on when you think that wholesale sale will increase. So after the appointment of the creative director, when you will have these new handbags because it seems that now the trend is for a progressive decline of wholesale sale.
The third question is about the AUR that was a drag on this quarter result. And for what I 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 these IOR decline in which countries or geographies was especially strong? Thank you.
Okay. Okay. No problem. So 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, I mean, 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, making great progress and continue to support the organization.
But I would refer to the strength of the design team that Christopher has built over the years And 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, so 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 time frame, yes, we will run this over a period of time because the wholesalers are a really important part of our sales 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. And 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 sales to be in the department store, which floor, what are the adjacencies. And those discussions are going well, but obviously it takes time to do this. So 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 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. So we've managed to do that already because some of them were clearly non luxury. So I think good progress, but early days.
This is we'd see this happening over a 2 year period. So AUR? Yes. And then
AUR by region, I mean, it's a little bit less of an impact in Americas, but nothing really significant to call out between the 3 different regions in terms of the AUR trend.
Thank you very much. Judy, 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.
So no, we would complete And
the number of doors, I mean, it varies significantly. You have a large number of very small accounts in one market and actually one partner in another region that could be portion of revenues. 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 UK in terms of percentage of total sales as of today? And finally, one question again on promotional activities. Given what you're expecting to do in the next few months 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.
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 UK, which will extend obviously into the next few quarters.
So we would expect the comp to be tougher, and therefore, that will affect our Q4 we expect it to affect the Q4 results. And certainly, the Chinese performance continued to improve between Q3 and Q4. There was a considerable strengthening in China. So yes, those two factors will certainly affect our comp in the Q1. The AUR, the product mix is also likely to run through because it runs by season.
So we're also expecting an AUR impact in the Q4 as well. In terms of the UK percentage of total sales, it's 11% at the moment. It was around a 10 ish mark, 11%. And 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.
But 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. So 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, Ashley. 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 25,000,000 dollars
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. No, I think we're
just trying to give you an early indication because it just looked like not many people have really sort of thought it to look to us from our read of the numbers about the FX. So we thought we'd guide on scope clearly at the end of December and we still got to finish this year before we can firm up numbers. We'll give you 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 questions, please. First of all, following up on your comments about this outperformance of certain categories and also implying that tranches underperform. So 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? My 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 at in your retail store network and outlets, etcetera?
And finally, maybe looking at consensus PBT, so I understand you don't want to comment or quantify the additional headwind pressure coming from the move from $1.31 to $1.38 since the closing. But was this 2% like for like in line with your own expectation? Or was it a bit disappointing? And then we would need to maybe take that into account in our estimates or do you think that you can have mitigating factors against that? Thank you.
Okay. 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. And 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 that made a bigger difference in this particular quarter, which has really driven the point on AUR.
But obviously, the strategy is multiyear. 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've got low single digit growth in the U. S. In Q2, and we've repeated that in Q3. Overall, the highlights that we get in the U.
S, our U. S. Performance is really down to the work that the team has been doing conversion and the retail excellence program driving the clean telling, 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, very good. In terms of the third question relating to exchange we've covered.
So 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 and it was within the boundary of what we were looking at in terms of that. And just on the foreign exchange, just to clarify, the $131,000,000 is the effective exchange rate for the 9 month period in 2018. And then we've used the rate in the 3rd at the end of December and replicated that for the 4th quarter to give us a full year effective rate, just to explain how we've done that.
And then when we do the full year 2019 calculation, we take the full year at the spot rate at the end of December. So that's what we've done.
Okay. So thanks for this precision. So all in all, I mean, that consensus PBT number in your view, I mean, 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 at the higher end of that range, probably didn't have the opportunity to fully reflect some of the guidance we've given. And 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. Our next question is from Zuzanna Puss calling from Berenberg. Zuzanna, please go ahead.
Good morning, Julie and Charlotte. So I have just two remaining questions. First of all, on the new products. So if I understood correctly, the new handbags offering under the creative direction of Sabrina Bone SE will come into stores in Q1 FY 2019. Is that right?
And 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, I mean, how significant this could be? I mean, can you expect completely, let's say, completely new model or just generally a refresh of your existing range and also you said sort of major marketing push behind that? And 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.
But also can you make any comments on the domestic consumer? Have you seen any notable weakness? I mean, 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. Okay, sure. So taking a look at those, yes, we do. I mean, the key thing with the handbags is we want to build out a full sort of architecture of handbags so that we're looking at different functions, different usage. So 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. But it's 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. So 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. But 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 sort of one product type approach. So 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 Q3. However, a very big caveat around our U. K.
Domestic data, what we record when a consumer purchases from Burberry is the home address, then that dictates whether we were attributing the person to UK, domestic or overseas. And quite often, people have second homes. And therefore, we could pick them up in our databases, the UK national, but they may not be. They may have a second home or be still a tourist. And what we 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. So although we've seen a weakening in the Q3 in domestic, it's highly likely to have been influenced by tourist trade, I should imagine. In terms of some of the press commentary, it's really all around the mix, the product mix in the quarter.
I mean, 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. And I think that's what you're finding the press will pick up
on. Perfect. Thank you very much. That's all clear.
Okay. Thank you.
Our next question is from Rogerio Fujimori calling from RBC Capital Markets. Rogerio, please go ahead.
Hi, good morning, Julie. Good morning, Charlotte. I think in the press release, you referred to good digital sales growth and I appreciate you don't disclose specific numbers, but 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?
And could you confirm that your e commerce penetration in Americas is still double the global average? Thank you.
Okay. Thanks, Shail. I'll take this.
Yes. So yes, we did see it's 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. And as you know, we've had a focus on some localization efforts, particularly in Asia. It's nice to see that working for us.
And as you say, yes, the U. S. Is still sort of the most penetrated market for us and for digital.
Thank you. And was the growth contribution from e commerce in Q3 comparable to the first half?
Yes, it's very similar.
Okay. Thank you.
We currently have no further questions registered. I'll hand back to you, Julie.
Okay. Thank you very much. So thank you for your questions and for joining our call. So just to close, we're right at the beginning of a multiyear 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. And we look forward to updating you at our prelim results, which are going to be held on the 16th May. Thank you very much.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.