And gentlemen, please stand by. Your conference will be starting shortly. There will be silence until the conference begins.
Good morning, everyone. I'm very pleased to welcome you all to my first Burberry results. Burberry is an incredible brand, and I'm very honored and excited to be here and to work with this exceptional team on building our future. First of all, in terms of our agenda today, I will touch briefly on our performance in the first half of the year before handing over to Julie, who will go through the interim results. I will then present our strategy to establish Burberry's position firmly in luxury.
During which, Judy Carlinson, our Chief Merchandising Officer, will talk about our plans for product. Julie will come back on our financial ambition, and I will close before we open up to Q and A. Before we begin, I wanted to say a few words about Christopher, who is sitting here with us. As you will have seen from last week's announcement, Christopher has made a personal decision to leave Burberry at the end of next year. This is a decision I know he came to after much deliberation.
Christophe joined Burberry when he was 29 years old, and he has lived a long and successful experience. As Burberry begins the next decade of his journey, I fully understand why he felt he couldn't commit for another lengthy period at this point in his life. I'm sad to see him go as I wish to collaborate further with him. At the same time, I am very grateful for the legacy he leaves and the strong foundations on which we can build the future of the brand. As was communicated last week, a process has now started to identify a successor, and I look forward to updating you in due course.
Turning now to our interim results. I am pleased with our performance in the half, which was underpinned by good progress on our operational efficiency and productivity program. Revenue grew 4% and adjusted operating profit increased 17% underlying. Retail led the growth with strength in Asia Pacific. Digital grew in all regions, led by mobile.
And consumers responded positively to fashion and newness. Adjusted EPS was up over 30%, and we have declared an interim dividend of 0.11p, up 5% year on year. With that, I will hand over to Giulio to take you through the detail.
So thank you, Marco, and good morning, ladies and gentlemen. Revenue was up €1,300,000,000 up 4% underlying and 9% reported. Adjusted operating profit was €185,000,000 up 17% underlying and 28% reported. Adjusted diluted EPS was up 32%, reflecting adjusted operating profit growth and the accretive impact of our share buyback. With strong free cash generation, we closed the period with net cash of £654,000,000 after £194,000,000 of share repurchases.
And finally, we proposed an interim dividend of £0.11, up 5%, in line with our progressive dividend policy. This slide shows the changes in our half worn revenue by channel. Retail, which is 75% of our business, grew 5% underlying with comparable store sales growth of 4%, split 4% in Q1 and 5% in Q2, with space contributing the balance. Wholesale excluding beauty grew 1%, broadly in line with guidance. Revenue was €4,000,000 lower year on year, primarily reflecting the reduced revenue from Japan.
Our royalties from watches also tapered ahead of the license expiry in December. The total business, excluding Beauty, grew by 3% underlying. Turning to beauty wholesale, revenue grew 5%. This was a strong finish for beauty ahead of the transfer to coating as we saw less disruption than originally anticipated. The business successfully transferred on the 2nd October as we planned, and licensing income will be recognized in the second half of the year.
Total revenue grew 4% underlying with £63,000,000 exchange benefit. Reported revenue growth was 9% at £1,300,000,000 Now briefly, retail wholesale revenue by region. Asia Pac grew 7% with a mid single digit comp sales growth driven by strong mid teen performance in China Mainland. Hong Kong returned to growth, while Korea remained challenging. EMEA grew 5% with a mid single digit comp sales growth.
The U. K. Delivered double digit revenue growth over the half as domestic spend remained strong. However, as we expected, the U. K.
Slowed through Q2 with the annualization of sterling weakness. And finally, our business in the Americas continued to be under pressure from the challenging environment in the U. S. Comparable retail sales were marginally negative, albeit the trend improved in the 2nd quarter. For wholesale, growth in Asia Pac offset declines in other regions as we took a cautious approach to managing the inventory sold into our partners.
By product, newness and innovation again outperformed in all categories. Accessories grew 4% with particular strength in small leather goods and bags, benefiting from innovation like the beasts campaign and the launch of DK88 in smaller sizes. In apparel, we saw similar trends in women's and men's, both up 4%. Rainwear delivered strong growth in Q2, reflecting in particular the recent success of our Car Coat and Tropical Gabardine. In beauty, there was a good response to new fragrances with the successful launch of My Burberry Blush.
And finally, in children's, we saw strength in outerwear. Now looking at the operating profit. We delivered 17% underlying growth, 28% at reported rates with a €15,000,000 currency benefit. Profit was driven by a strong retail wholesale business performance, coupled with significantly improved beauty profitability and the phasing of marketing and IT spend between the two halves. We also had positive regional mix from Asia.
In addition, we delivered incremental €20,000,000 of cost savings, which I'll give more detail on shortly. This was partly offset by strategic investments in digital and retail. So for example, a new in store sales associate tool improving visibility of inventory across our network. This slide shows our income statement. And so as to comment on simplification, we're simplifying our disclosures to focus on group operating profit and group margin as a single measure and way of tracking our profitability going forward.
For transparency, the detail of the split between retail, wholesale and licensing is still available in the appendix and will continue to be so going forward. So turning to the group. Gross margin grew 60 basis points in the half, benefiting from regional mix and the non repeat of the prior year beauty inventory charge. Operating expenses increased 6% in the half, reflecting inflation, PRP and currency, partly offset by benefits from the cost saving and reduced marketing spend in beauty. Operating margin grew 2 10 basis points to 14.6%, including a 50 basis point benefit from currency.
Now turning to cost savings. We delivered a cumulative $40,000,000 from our original $100,000,000 commitment, 20,000,000 last year and 20,000,000 now in the first half year. These have been realized through operating model simplification and procurement savings. I'm also pleased to announce that Burberry Business Services in Leeds opened on the 9th October, and we extended its scope to include IT such that we now have a comprehensive center covering finance, HR, procurement, customer service and IT. We have over 120 new recruits successfully onboarded, with the IT help desk going live last week.
Customer services started taking calls in November and finance streams go live on the 27th November. And finally, this morning, we announced that we will be accelerating and extending the cost program, delivering €60,000,000 of benefits this year, £100,000,000 in full year 'nineteen and an additional £20,000,000 annualized in full year 2020. To give you an insight into the split of these benefits of the $120,000,000 about 45% will come from operating model and process simplification, 25% from procurement and 30% from other activities such as property related savings. Now moving further down the income statement. Adjusted operating items totaled GBP 58,000,000 and I will return to this on the next slide.
We expect a full year tax rate of around 25 percent, an 80 basis point improvement on the prior year, and this is the rate we've applied in the half. We have repurchased 15,000,000 shares over the last 12 months, contributing to diluted EPS growth of 32%. I'd now like to summarize the main components within our adjusting items. So firstly, we've incurred a CHF 28,000,000 of costs associated with the transfer of beauty. Important to note that for the full year, this charge is expected to be minor as around €30,000,000 of the proceeds received in the second half from Coty relate to the transfer of beauty operations.
The remaining proceeds will be recognized evenly over the term of the license. 2nd, a restructuring charge of £33,000,000 and we expect this to build to about £75,000,000 by the end of the year. This compares with previous guidance of £40,000,000 This reflects the accelerated delivery of savings, the expansion of the targeted cost savings, coupled with new strategic decisions, which Marco will outline shortly and finally, the small credit relating to Burberry Middle East. Now turning to cash. The business remains strongly cash generative with GBP 270,000,000 of cash inflow from operations.
This reflected the growth of operating profit and our working capital inflow driven by inventory, with fashion inventory down 11% at constant exchange rates compared to last year and beauty inventory being reclassified as held for sale. Free cash flow was €171,000,000 after tax, which benefited from timing differences. CapEx was €53,000,000 and we now expect CapEx for the full year to be £130,000,000 which is below our previous guidance of 140,000,000 as some refurbishment projects have been delayed pending the strategic review. This slide shows the cash movements in the half. We generated free cash of $224,000,000 pre CapEx and the main outflows in half 1 as being capital expenditure, the final dividend and our share repurchase program.
We repurchased €191,000,000 of share buybacks and with the remaining balance of €159,000,000 to be completed by the end of the year. And finally, in total, our net cash at September 2017 was €654,000,000 or on a lease adjusted basis, this is net debt of €600,000,000 This excludes the proceeds from Coty, which we've already received on the 2nd October, and we expect this to translate into an inflow of about £165,000,000 in half 2. So turning now to our full year 2018 guidance. As you can see, the details on the slide, so I won't talk you through each line. The key message is that the expectations for full year adjusted operating profit have only marginally increased at constant exchange rates.
In the second half, we are mindful of a number of factors impacting this. So we expect the cost phasing benefit in half 1 to reverse in half 2. We expect a decline in wholesale revenue in line with strategy. Customer facing investment is expected to increase in support of the strategy. And we're very mindful of a tougher comparative base for the remainder of the year, particularly in the U.
K, where we've seen a softening in recent weeks as we annualize some very tough comps. As usual, we've updated our estimates of the impact of currency on the full year reported profits, and we now expect a negative minus €20,000,000 impact compared with minus €25,000,000 as previously guided. As we saw a €15,000,000 benefit in the first half, this will mean €35,000,000 adverse for the remainder of the year. So in summary, we are pleased with the performance in the first half, showing clear evidence of strong operational execution, and we're now focused on implementing the strategic initiatives that we'll share today. And this concludes the review, and I'm very happy to hand back to Marco.
Thank you, Julie. These results give us a very solid platform from which to launch the next phase of Burberry's journey, which is the topic I want to turn to now. This company has been on an extraordinary journey Since our founder, Thomas Burberry, set up his first shop in Basingstock 161 years ago, Burberry has been synonymous with innovation and adventure. We invented the Gavaldin, which revolutionized outerwear. We clothed the great explorers of the early 20th century.
Our pioneering spirit drove us to become a fully global company, evolving from a licensed business to retail and digital leaders. Today, we're a company with revenues of £2,800,000,000 under one label, but our spirit of innovation and adventure remains the same. As we start the next phase of our journey, we're fortunate to be able to build from some enormous strengths. First, we're a truly iconic brand. According to Interbrand, we're one of the most valuable luxury brands in the world and have ranked amongst the top 100 most valuable brands since 2010.
We're also the only British luxury brand in the top 100. Unlike France and Italy, which has many luxury brands, we are the only luxury company of this scale in Britain and also one of Britain's most valuable brands. 2nd, we're a brand with strength across multiple categories. Of course, we're known for our iconic outerwear, but we're also leaders in soft accessories and have built a significant business in leather goods. While many of our luxury peers are known for leather goods, there are not many companies who can play across multiple categories in this way, And this gives us a unique base on which to build.
Our third strength is our distribution footprint. Here, I would like to draw out 3 things. 1, we have an extensive number of stores with 461 directly operated stores and 48 franchise stores. 2nd, our distribution is well balanced with a good presence in all the major luxury cities around the globe. And 3rd, in terms of mainline stores, we have excellent locations with adjacencies next to top luxury players.
Lastly, we have been we consistently have been a digital innovator. Back in 2,009, we were the 1st brand to operate on Facebook at a time when most luxury brands believed it would be damaging to create such a direct relationship with their customers. Since then, we have continued our digital leadership in the industry. We were the first to live stream our runway show. We formed marketing partnership with leading tech companies such as Apple, Google and Snapchat.
We built a global e commerce platform with a big level of localization. And this year, we are the number 1 digital luxury brand in China. Digital is part of our brand identity, another dimension of our innovation. In today's environment, luxury players are having to adapt and clarify their brand positioning. This chart shows on the vertical axis price and on the horizontal axis a scale from heritage to fashion.
In my view, Burberry occupies a position somewhere in the middle of these two axis. Let me explain. 1st, Burberry has elements of both heritage and fashion. We have a long and rich history and are well known for iconic heritage products such as our trench coat. At the same time, we have a reputation for creativity and industry leading fashion shows.
In terms of price, our offer today is a combination of 2 different price points. For some items, we price below our luxury peers. For example, our standard Oxford Polo shirt is about 50% less than the equivalent at other luxury brands. For other items, we price at the level of luxury players. Recently, our growth has been slower than several of our peers.
Industry performance has polarized, and best in class players that are delivering strong differentiated offers our exciting luxury customers and enjoying strong growth. The strengths Burberry has built over the last decade give us a solid platform. But what drove our growth in the past is not necessarily what will fuel our future success. Today, the luxury sector is changing. 1st, overall industry growth is expected to slow to 4%, 5% in the medium term.
2nd, the drivers of top line growth will be different, with space and price playing less of a role. 3rd, growth is becoming more expensive, particularly with the increased marketing investment required to engage and excite luxury customers. In addition to the sector, the luxury customer is also changing. Today's customers are moving away from traditional notions of luxury and elegance and are looking for casual, fun, fashion that fits with their lifestyle. They expect creativity even on enterprise products.
They care about experiences and use luxury goods to express their opinions and point of view. Today, consumers want fashion and newness. Their wardrobes are already full of iconic staples. Only innovative, exciting products will entice them to buy. In the digital age, consumers also engage visually and often and expect continuous new innovative content, which favors fashion brands.
Even heritage brands are now using the tools of fashion, even streetwear to introduce newness and respond to today's luxury consumers. Consumers are also polarizing between luxury and mass. 30 years ago, mid market brands dominated the fashion market. Today, however, consumers prefer either luxury items or mass market brands, mixing them together to create a look. The mid market offering no longer has a place with this consumer.
This polarization is also reflected in pricing. As this chart shows, over time, luxury players have been able to create a substantial price premium. Brands that play in the top segment enjoy very strong pricing power and have driven growth through price increases. At the mass end, prices have fallen over time. In the meantime, the middle ground has stagnated.
Players here have neither the equity to raise prices nor capabilities to produce an offer that is competitively priced against the mass segment. With the movements in the market, we must sharpen our brand positioning. We must move up to ground ourselves firmly in luxury. We must move left to respond to customers who want fashion and newness. The luxury segment is the most valuable and enduring segment of the market.
Burberry has the history, equity and capability to play here, especially after its recent consolidation to one label. And I believe this is where we should position our brand. For the next chapter in Burberry's history, our vision is to establish the brand's position firmly in luxury fashion and inspire new luxury customers with our unique British attitude. One of the reasons I came to Burberry was because I truly believe that we have one of the most inspiring brands in the industry. I want to take a minute now to share with you a video which captures some of the history and the spirit of this amazing brand.
As you saw, we are and always have been extraordinarily creative, innovative and outward looking. We're dynamic, constantly moving forward and have been pioneers and explorers in every sense of the world. It is true that we are 161 years old, but we're also young, relaxed, informal and relevant. No one else has such a credible claim to British luxury, and there is so much potential here. Today, consumers are looking for modern, casual, fun, fashion that fits with their lifestyles.
This has always been the very essence of our brand, and this soul gives us a completely unique and relevant voice in fashion today. We will achieve this vision through 3 major initiatives: renew the product, evolve the communication and transform the experience. Let me explain each one. 1st, we will renew our products. I truly believe that the fundamental mission of any luxury business is to create irresistible product.
And the transformation of this brand has to start here. There are 5 pillars to our product strategy: fashion, leather goods, continuous engagement, wardrobing and rebalancing our pricing. I'm really pleased to introduce to you now Judy Collinson, who joined us in May as Chief Merchandising Officer and who in just a few months has already formed a great partnership with our design team to inject a remarkable level of excitement and newness. And Judy will take you through our vision for product.
Thank you, Marco. Good morning, everyone. I'm very happy to be here. I have always thought Burberry an extraordinary brand. Luxury fashion is its natural evolution.
This is the next step. We are renewing ourselves with every collection. While we completely are committed to our current client, we are designing and merchandising to the new luxury client. We are talking to the evolving luxury consumer. This client is by nature young at any age, open, informed.
They are critical, enthusiastic, they take their clothes personally. Fashion is part of who they are to the world. They want to look new, They want to be themselves but constantly refreshed. We will excite, challenge, entertain this client. We will build a real relationship.
For the millennial, we are told we have to provide context and true meaning. Honestly, this applies to every demographic. Each collection will be focused on fashion, even though we do not walk the runway. We will celebrate our aesthetic, our ironic, optimistic, inclusive, genuinely humorous, uniquely British definition. We have incredibly strong business drivers, which we continue to refresh.
We're adding novelty to core categories. We're renewing bestsellers like banner and rucksack. We are reinvigorating our basics. We will entice all our clients to explore the newness. We are creating relevant product to recruit the new fashion client.
Ready to wear is the primary signal of evolution for both men's and women's. Collections will balance casual and elegant. Outerwear strength will continue. Runway deliveries will become even more important. All deliveries will be directional.
We will elevate leather goods. We are transforming this category. 1 of the most visible ways Burberry can renew brand perception is through leather goods. Handbags are a source of prestige, a barometer of quality and creativity. We will build a solid architecture of leather goods to reach the new luxury consumer.
How will we take leather goods market share? We have an incredible design team that understands luxury. They are focused on growth, strategic development, the modern client. We are evolving the character and attitude and language of the Burberry handbag. It is an ongoing conversation, and it is resulting in bags with humor, personality and functionality, handbags that are identifiably Burberry.
We will increase the prominence and space dedicated to leather goods in our stores. We will wardrobe the customer. We are merchandising and styling our collections to outfit the whole client. We will emphasize cross selling and consider all end uses, casual, travel, work, dinner, event. We will display in store by look and fashion category fashion story.
We are rebalancing our price architecture. We are merchandising a full breadth of price points. We are building an architecture of competitive prices. Value will be perceptible. Quality, richness of design will continue to be inherent.
We will constantly renew our entry price offer to drive client conversion capture the new fashion client. We will continue to excite with customer converters. We have been pioneers of direct customer conversation. Our clients expect continuous engagement through fresh product. We are bringing them to stores through regular curated deliveries.
We will continue to be unconstrained by the traditional calendar.
We will choose the moments we speak
to our clients, creating lively, robust, constant conversations. We will build on the energy of capsules, projects, collaborations and amplify our brands with art, music, culture and the wider world. This is the beginning of a new chapter. We have such a strong foundation on which to build. We recently brought back a vintage 1960s Czech.
It has tremendous energy. It is in filter defective linings, appeared on a car coat, shirt, cap, muffler. We sent a casual fashion tote down the runway in an extravagant subtartan. Nude knits are British stitch collages and signal future intensification of this category. We have made translucent rubber ring wear completely wearable fashion.
Our evolution has begun.
Thank you very much, Judy. The next pillar of our strategy is communication. We will evolve the way we communicate with our customers, reimagining our content and taking a curated edited approach. Our communication strategy has 3 pillars: product first, content revolution and experiences. Product first.
One of the most important actions we'll take is to make product prominent in everything we do and make it look irresistible. We're a fashion brand that makes beautiful products, so in every image and campaign, we'll make product front and center. From now on, we will also create dedicated support and campaigns for pre collection, not just for Verano. Content Revolution. Here, we'll do 3 things.
1, think differently about all content, from campaigns to what we publish across all digital channels and our own site. 2, update our creative language. It will be bold, dynamic, real, compelling and the change is underway. 3, ensure everything is not just relevant for social, but made for social. It's now the first access point to any brand.
As an example, this is a snapshot of our Instagram feed, which shows the recent collaborations we did around the September show and our new direction of travel. Focus on experiences. We know that experiences are becoming ever more important for exciting and engaging luxury customers. We must focus on the most powerful experiences for our clients across every channel, physical, digital and even augmented reality. This image shows our recent augmented reality collaboration with Dennis Angra, which allowed our customers to step inside Dennis' illustrated Burberry walls.
If you haven't tried it, I encourage you to have a go on our app. Across all communications, we will leverage our digital reach to convey our new brand energy. As an early adopter, we have outstanding digital reach with over 50,000,000 fans globally across 15 platforms, 22 accounts and 11 languages. More than our physical network, this will allow us to communicate the changes in our brand instantly around the globe. In addition, our data and analytics also enable us to get the best from this reach, connecting the right content to the right platform and audience.
The 3rd step in our path is to transform the way our customer experience where the customers experience our brand. As we move towards our new brand positioning, it is critical that we create a consistent luxury brand experience across each and every one of our customer touch points, including mainline, digital, wholesale, travel retail and outlets. Our mainline stores are clearly fundamental to our growth ambition, and the rejuvenation of these stores is critical to convey Burberry's new brand image. We will start by rolling out a light yet high impact refresh of our top stores in high visibility influential fashion markets. In addition, we will also develop a new store concept and make significant investments to roll this out over our network.
Over the medium term, we plan to refurbish the majority of our stores. Our store managers and associates play a pivotal role in shaping the brand experience. Over the past 2 years, we have done a lot of work on retail excellence, and will continue to accelerate this. In order to support the new brand positioning, we will also introduce some new initiatives, especially in training and clienteling, which will drive productivity. We believe all these efforts will drive a meaningful increase in sales density.
Over time, we clearly have the potential to improve our performance, while recognizing that many other luxury players that are predominantly leather goods will continue to have higher margins. Moving now to digital. Contrary to popular belief, one of the key reasons I joined this brand was because of its digital leadership. To me, digital is an absolutely integral part of Burberry and will continue to be one of our biggest opportunities. As soon as you land on our homepage, it will be clear that Durbari has a strong fashion point of view with an endless feed of exciting content.
We will convey our point of view through highly curated product assortment and merchandising, innovative angles and stories on our products and new views and formats that bring our products to life. Personalization is about digital platform responding to the customer. It is about changing how we interact with them because we're listening to what they're telling us explicitly through what they buy and implicitly through what they're viewing. Omnichannel is a much used term, but our priorities are straightforward. We will allow customers flexibility in how they want to pay for and receive product consistently and seamlessly across all channels.
Finally, many customers and key opinion leaders in fashion will continue to buy our products via 3rd party channels. We will ensure these are a key driver of our growth in the future as well as brand image. Turning now to wholesale. Our goal is to reflect and amplify Burberry's new luxury positioning. This includes recruiting and growing our image driving accounts, implementing special product collaborations, increasing our accessories presence in key department stores and growing travel retail.
At the same time, we plan to reduce our presence in non luxury points of distribution to strengthen the brand experience and ensure consistency across all touch points. In the U. S, I've personally visited the majority of our wholesale accounts and addressing these will be my first priority. Here, we will both upgrade doors to drive brand image and also reduce exposure where necessary to reflect the new brand position. Outlets will remain an important part of our business model as a liquidation channel for inventory.
However, as this chart shows, we are slightly over penetrated in outlets and therefore plan to rightsize our portfolio. In aggregate, by taking these actions, we will build a true luxury distribution network. We will achieve significant growth in our mainline and digital channels, supplemented by growth in luxury wholesale. In the medium term, this growth will more than offset the declines associated with reducing our non luxury distribution. So to recap, we will achieve Burberry's vision through coordinated actions in product, communication and customers' experience.
As we embark on this path, we expect our transformation to have 2 phases. First, we expect a period of transition as we implement the strategy. In this period, we will rationalize our distribution and invest to reactivate the brand experience as well as manage the creative transition. We believe this period of investment will enable us to establish Burberry's position in luxury and prepare us to deliver sustainable long term value. In the second phase, we expect growth to accelerate across all geographies, driven by a new creative vision and rejuvenated brand and underpinned by strong mainline and digital performance.
One final comment before I hand over to Giulio to take you through our financial ambition. It is important to reinforce the point that becoming luxury does not mean we will not pursue efficiency or financial discipline. On the contrary, especially during our transition phase, we must remain focused on managing costs and delivering savings to stabilize our profits. We will also carefully prioritize our resources during this time. Julie, over to Irma.
Thank you, Marco. And now I'll provide more definition around the guidance for our 5 year plan. So we plan to invest in the future in order to place Burberry definitively in the most profitable and sustainable segments of the luxury market. There will be this period of transition when we implement the strategy, throughout which we expect to remain strongly cash generative and committed to our capital allocation policy. So turning to the short term, we expect in 2019 2020 to be the transitional year for Burberry.
Revenues here are expected to be broadly stable as we rationalize the nonluxury elements of our distribution channels, and our revenue ambition beyond this point is to deliver high single digit top line growth. Our adjusted operating margin is expected to be broadly stable during the initial period of investment in the brand. $120,000,000 of cumulative cost savings will support profitability during this important period. Thereafter, we expect to deliver meaningful margin expansion with revenue leverage and cost based control, improving our profitability. We expect continued strong cash performance throughout, maintaining strong levels of cash conversion with ROIC improvement in the out years.
The plan will be supported by CapEx of €150,000,000 to €160,000,000 per annum through the 1st 2 years, building to €190,000,000 to €210,000,000 per annum as we invest in refurbishing our store network. We remain committed to our progressive dividend policy and expect to continue to provide additional shareholder distributions in line with our capital allocation framework. At Burberry, we are guided by a value creation framework, which has 3 major components: 1st, revenue growth second, operating margin and finally, capital efficiency. And I'll now discuss the impact of our strategy and how we will achieve our financial ambitions with each of these drivers. So first on revenue, our financial ambition is to deliver high single digit percentage growth.
And as you heard from Marco and Judy, this will be underpinned by building a compelling fashion and leather goods offering, changing our communication to convey new energy and transforming our customer experience in the way that was described. Our second driver of value creation is profitability, where our overarching ambition is to deliver meaningful operating margin improvement. And here you can see our operating margin in the context of the peer group. The first point to note is the difference in margin between apparel and leather goods players. Typically, leather goods luxury players have higher sales densities and consequently higher margins than companies specializing in apparel.
2nd, we're above the average for luxury apparel players. And whilst we recognize that our margin is unlikely to reach the levels of level of goods, we have the ambition to improve the margin significantly as we take the actions outlined by Marco on the top line. Coupled with the actions I will come on to relating to our cost base. To grow ahead of revenue for 3 major reasons. So first, our cost saving program and simplification agenda will drive savings to support profitability.
In addition, G and A expenses will fall over the planned period, allowing increased investment in marketing and other customer facing activities. 2nd, improved top line growth will generate operating leverage as we control the fixed costs and the semi fixed costs within our business. And finally, we expect to improve our tax rate to 200 to 300 basis points from full year 'seventeen by full year 2020, assuming no major changes in tax legislation. So taking a look at the cost saving program in more detail. We have 6 major mechanisms for realizing cost savings across our business, and I will highlight just a few.
As you've seen from our interim results presentation, cost savings of €40,000,000 have now been delivered through simplification of our operating model and procurement savings. In the next phase, we have accelerated and upgraded the savings target to a cumulative of €120,000,000 And for context, this equates to about 15% of our addressable cost base. The main lead of this change continue to be, firstly, procurement, where we've now got a global approach to the main nine categories of indirect spend across the entire company. Secondly, our operating model, where we continue to yield savings by addressing spans, layers and complexity in both the front and the back office, including our brief to buy process. And thirdly, Burberry Business Services, which I discussed with you earlier, we now have the opportunity to standardize company wide processes such as purchase to pay, sales order to cash in one center.
This delivers savings from 3 sources: labor arbitrage, real estate and productivity improvements. And more importantly, this initiative will make it simpler and easier to work in Burberry as the back office becomes more standardized and systematized. Finally, inventory management. Although fashion is a headwind here, the rationalization of the range and the simplification of the brief to buy process will enable deeper buys and streamlined order fulfillment. And building on Lean 6 Sigma, we will also improve our supply chain agility and shorten lead times.
Our 3rd lever for value creation is capital efficiency. Burberry is highly cash generative with strong cash conversion over the last 5 years. And going forward, we continue to adopt a disciplined approach to resource allocation, capital investments and working capital management. Now looking at CapEx. Over the last 5 years, our CapEx has averaged $150,000,000 with the largest proportion being real estate investment directly into stores.
In full year 'nineteen 'twenty, we expect CapEx to be broadly in line with the historical run rate of $150,000,000 to 160,000,000 And beyond this, as Marco discussed earlier, we'll step up our refurbishment program, refreshing the majority of our stores by the end of the 5 year period, so we expect CapEx to build towards 190 to 210 per annum. As you would expect, we will continue to invest in IT and digital. So turning to the next slide, I thought it would be useful to recap on our established capital allocation framework. So first, we reinvest in the business to drive organic growth. 2nd is our progressive dividend policy.
3rd, we pursue selected strategic investments in line with stated objectives. And 4th, we're committed to returning surplus cash to shareholders. Underpinning these capital allocation priorities is our decision to maintain a strong balance sheet with a solid investment grade credit metric. We assess our balance sheet strength by referring to 2 key areas. First, our lease adjusted net debt to EBITDA ratio, which is 0.5x for full year 'seventeen and our fixed charge cover, which is comfortably above the level required.
So for planning purposes, we would expect to maintain an adjusted net debt ratio of 0.5 to 1x. So to illustrate this, by looking back over the last 5 years, we've returned over GBP 1,000,000,000 to shareholders through a combination of dividends and buybacks. And over the period, the cash generation has been strong at 2,500,000,000, and there we've invested pool casing capital projects, including opening almost 100 mainline stores, including flagship stores in London, LA, Shanghai and Tokyo. We returned Poontate through the dividend with an average growth rate of 11% per annum, and we've made strategic investments of around 200,000,000 predominantly relating to the purchase of Beauty and China operations. And finally, we've repurchased €300,000,000 of our shares.
So to pull this all together, we expect to generate significant cash over the 5 year plan. We are fully committed to the capital allocation framework, including a progressive dividend of growth that's at least in line with prior year. And we will review the scope for additional shareholder distributions at the end of each financial year as we usually would. The plan requires capital investment, but we'll exercise strong discipline in our allocation of capital to ensure we're investing in the most accretive projects. And in total, this means we expect our ROIC to remain significantly ahead of our weighted average cost of capital, accelerating in the outer years of the plan.
This completes our review of financial ambition, and I'll now return to market.
So to recap, I have already spoken at length about our plans for product: communications, distribution and digital. And Julie has just talked about operational excellence. Now I want to turn to people. Having an engaged and talented team working in the right way is vital for delivering the strategy. One of the things that struck me most when I first joined Burberry was the incredible talent we have here and the energy and passion people have for the brand.
To build on this, we have also put in place an extensive people program, addressing engagement and ensuring each employee finds meaning in our new strategy, strengthening our skills and capabilities, empowering our leaders, simplifying our ways of working, promoting a creative and pioneering culture and positively impacting our community and environment. Perhaps most importantly, we will continue to review our ways of working, focusing on the highest priority processes to ensure we are working as effectively as possible. Ultimately, this will have a huge impact on our culture and our performance. People is a topic very close to my heart, and I will personally ensure that I deliver the strategy so that the whole organization understands this vision, how we're changing and why. I want everyone here to be as excited about this as I am.
And of course, leadership will be critical to delivering the strategy. I am fortunate to have a really exceptional team in place who has a balance of in-depth experience from Burberry, the luxury industry and major multinational businesses. We also have a great mix of fresh talent and existing Burberry expertise across each of our strategic pillars. In conclusion, we are starting this next chapter from a position of great strength. We have an iconic brand with a unique and vibrant spirit.
We have a strong luxury network and innovative digital leadership. We have always had 1st rate creative talent, and this will continue. Luxury consumers are changing, and we too need to change. As you have heard, we will evolve all elements of the business to do this. In the 1st years, we will make important investments to build the right distribution network and manage the creative transition.
This will give us a strong foundation from which to accelerate and grow. The strategy will now position Burberry firmly in the luxury segment, where all our peers aspire to be. This segment is the most enduring and rewarding part of the industry, where brands enjoy strong equity, reduced volatility, pricing power, high margins and growth. In this segment, we will build a sustainable long term business for all of our stakeholders and create significant value. I'm personally honored to lead this exceptional team as we build the next chapter for Burberry.
Thank you. And now I will be pleased to take any questions.
And just I've got quite a full of them this morning. So can I please ask that you limit yourself to 2 questions so that we can allow everybody to ask their questions? Please not lots of 6 part 2 questions either. Thank you.
It's Helen Brand from UBS. Just the first question, in terms of Creative Director and timing around a new announcement here, as you're thinking about the fashion refresh, how should we think about timing there? And secondly, can we just talk a little bit around how you expect the pricing architecture of the business to move? You talked about elevating towards that more fashion luxury positioning. Can you talk about each product category in terms of pricing architecture?
And specifically, I noticed that you didn't mention elsewhere, particularly in the talk. Can you talk about your plans there and the pricing architecture?
Yes. So in terms of the timing, we have started the process. The process has started. It will be a process. So we have plateaued in this plan that it will take some time to find the right lead, the right creative lead for Burberry for the next decade.
So we have factored it in. Don't expect any announcements very, very soon. There will be plenty of rumors. I want to speak about this immediately. There will be plenty of rumors as there are already.
There will continue to be. We will not comment on any rumors, but we will make an announcement when already. In terms of pricing, Burberry, as I said, already plays across the luxury space. What we need to do is to sharpen our price architecture across the categories. I think in leather goods, for example, we plan to develop a structured offer that will play across the category, across the functions, across the uses of leather goods by today's consumer.
You mentioned outerwear. Outerwear is and will remain a fundamental part of Burberry. It's the founding probably the founding element of Burberry, And it's very important that we maintain and we develop that. And while we have plans to grow leather goods, we are absolutely determined to remain with a very strong market share in that category. I think that in terms of pricing, I think we are pretty well priced in that category, for example.
So there are items, as I showed before in some of the charts, that need adjustment. But don't expect a major price repositioning of the brand. I think it's about more about sharpening and defining where we are underpriced and where we think is not the right space to play, we will correct it.
Good morning. Luca Soka from Exane BNP Paribas. Maybe just a question on the adjustment that you anticipate to carry out on distribution. You showed a very clear chart as far as the U. S.
Market is concerned. How fast do you plan to go there? And how big your stockpile short term do you anticipate to make? And on off price equally, you showed that you believe that we're exposed to factory outlets. Again, how do you anticipate to reduce that exposure as we go forward?
Thank you.
So yes, distribution is obviously an important element. In terms of the American distribution, in terms of wholesale, what we will do, we will work with our partners to elevate the position that we have today with them where it's necessary. We will review the doors where it's essential that we are and we are present in a much more compelling way. And we will review some doors where collapsing won't be necessary for us to play anymore. This will be done in partnership with our local wholesalers.
It will take a reasonable amount of time. This is part of discussions that will be ongoing. We foster their partnerships. All of our wholesale partners will be partners for the future. We also have the opportunity of increasing our presence with some other partners in America where perhaps today we have a marginal presence.
So it will be work that will be ongoing for, I would say, the next couple of years. In terms of the off price, in terms of the off price is a marginal adjustment that we are talking about. We don't need to significantly resize our position there. As I said, off price remains outlet remains a physiological important channel for liquidating our inventories. So that will continue.
We'll continue for that reason. There may be a few locations where we don't think it's essential that we remain. But as I said, it will be fairly marginal.
It's John Gold from MainFirst. The first one really around digital. Burberry has always been a prodigious forerunner in terms of the its positioning of the digital landscape. But that landscape has now continued to become a lot more competitive, not only in terms of own brands, investing more in their own digital presence, but also through third parties. How does Burberry plan to keep pace or even stay ahead considering you've always been at the forefront of digital?
My first question. And my second question, just so I'm clear in terms of the product and the price positioning that you've been talking about, Marco. If you're talking about the focus on leather goods, outerwear doesn't need too much work done to it in terms of pricing. What are the expectations from 'twenty one then in terms of value versus volume in that high single digit formula? And maybe just one final lot
of questions, but just to say, Chris, wishing you all the best for the future. So the digital first. Yes, clearly, there is a lot of catching up that players are doing in the industry. That's quite obvious and it was expected. So will we be able to enjoy forever the same league that we had before?
No. But what we have is an innovation lead, an innovation leadership that for the moment and we will invest significantly in it to continue it, will really make the difference. We are the one that pioneer
collaborations
new ideas with the technological companies. We have always been the one that has gone where other brands have not gone or have come after us. And this will continue. Our investments will be very significant in digital, not only in the technology platforms, but also in the platforms, but also in the content, which is today a significant element in growing customers in there. So we think we're convinced that we have the elements to remain leaders there.
In terms of price, in the outer years, I think that clearly, we think that there will be an element of price, but it will not necessarily be actually the only element of growth. We think there will be volume and there will be price in the outer years. As I said, there are some categories where we will need to fine tune our pricing. There are categories, as I said, and I want to be precise on that. On outerwear, we I haven't spoken much about outerwear because it's one of our pillars and it will remain one of our pillars, absolutely.
So with that, obviously, there will be a revision of the offer, there will be a reinforcement of the offer, and there will be a price. We like our price breadth. It's an asset, okay? I have no intention. We have no intention of positioning Burberry in a very small, extremely high level initial prices.
I think burger is what I always like to say is burger is an inclusive brand. We bring customer in through our experiences. Digital is the great gateway to grocery, and this has to continue. So we have no intention of shutting out customers through pricing. First question is just on the role
of being a bit more specific on the
role of wholesale in the plan. Am I right in understanding that through the transition period, you'd expect the wholesale business to decline modestly, maybe mid single digit negative? And then from 'twenty one onwards, contribute something to
the growth of the overall business. And therefore, the channel shift should be modest rather than dramatic.
And secondly, on the exceptional charges that you're booking for the cost savings program,
I think it's €111,000,000 in total. Can you say how much of that will be cash, please?
So maybe I'll take the first question and Giulio will take the second. I think yes, I think wholesale 1st of all, wholesale will continue to play a very important role. I'm a believer in wholesale as a driver of image, as a great way to position our product in the context with others with the reality of what the market is. In the efficiency that is given by the results that wholesale informs us with, so wholesale will continue to be part of our strategy. There will be as we go through some realignment, there will be, as you said, a small decrease over the 1st couple of years.
I expect that as we phase out through that, I expect that after that, it will become an opportunity for growth.
Yes. Thanks for your question on the restructuring charges. So we'd expect the majority of the restructuring charges to be cash linked, so cash related. Sorry, I didn't realize the math, I wasn't on. This is largely because we're dealing with employee type costs and lease obligations and also retention type awards.
So the majority of it will be cash. We've given the re phasing of this altogether, and it largely relates to the fact that we've accelerated the program, we've increased the amount that we're committed to delivering from $100,000,000 to $120,000,000 dollars And the 3rd element of the change relates to the change in the rationalization of the distribution towards Luxury, and that comprises the same charge.
Hello, good morning. This is Elena Mariani from Morgan Stanley. Two questions from me. The first one going back to leather goods and your focus on that category. As you correctly mentioned in the presentation, it's quite a competitive segment because margins are very appealing.
And if I understand correctly, in the medium term, you plan to outgrow the market and therefore to gain market share. How do you expect and plan to differentiate yourself in this very competitive environment? And who are the players you think you could gain market share from? This is my first question. And the second question is mostly for Julie.
Thinking about the building blocks that you've laid out, could you perhaps share with us the expected high single digit top line, all thinking about the high single digit top line, all the savings and all the investments, if you have something in mind that you could share with us? Thank you.
So first, Leather Goods. First of all, Burberry has been a brand that has been capable while it did start in has its founding and its origin in Aperol, GloZo has been one of the few brands that has been capable of creating already a significant leather goods business. The business is significant. It's a legitimate business. The customers are coming to us for leather boots.
So we're starting from a pretty strong position for an apparel brand. So it is about accelerating that. We've also seen that over the past few years, leather goods has been outperforming other categories for us. So we're on a great trend there. And we want to continue on that trend and we want to accelerate.
We have we are convinced that we have the teams from the time to merchandising product development in the stores where we will reinforce the capabilities in the stores to sell and to explain the goods. We think that we have the teams to do it. We have the means to do it. We have a great network, again, physical and digital that we can play with. We're going to increase the presence of leather goods in our stores.
We're going to structure the offer. We're going to look at the offer as a significant business led a good structure of offer. So it's not an overnight thing, obviously, not being done in 1 season. Even though I think we already have in the pipeline some very interesting products that will come out as we move on to next year. But we have, as I said, we have the experience, we have the means, we have the assets to deploy.
So we're quite optimistic there.
Okay. That's fair. To the question on margin, we delivered a 16 point 6% margin in full year 'seventeen. And what we expect to happen is, in this first phase of the transition, as we've got the restructuring of the distribution channel, the cost savings will support the profitability during that period. But then in the outer years, obviously, we've done 5 year modeling over this.
In the answer years, we'd expect to see a margin which is around 300 basis points higher by our 5 year target. What we're thinking about here though is it largely will come as the sales accelerate. So not only have we restructured the cost base, which we're doing in the 1st 3 years, but we'll also get the leverage from the sales line, which we expect to be high single digits in those 5 years as the 3 years of the plan. So net net, we get the leverage on the cost saving restructuring benefit. Probably important to say as well that we will also get an EPSA adjusted earnings per share improvement coming through the tax rate and obviously through cash distributions.
Thomas Chauvet from Citi. Two questions. 1 on CapEx, 1 on cost. On the CapEx, obviously, you have a greater focus on investments with a step up to about EUR 200,000,000 in the medium term. Can you elaborate on what the extra CapEx will be spent on?
I understand it's distribution to be a bit more specific on that $50,000,000 versus normalized CapEx. And I was also wondering why is the CapEx not stepped up next year? Why does it increase only in March 2021? And does that how do you think, Julie, about your share buyback program once it's over given the step up in CapEx? And secondly, on costs, if I remember correctly, underlying cost inflation at Burberry has been in the last few years about so you were guiding for about 5% underlying cost inflation.
It was about to start to slow down to 3% or 4%. You said in the past wages and rents would be still the main drivers of inflation in costs. In your transition phase 2019 2020, how should we think about cost inflation underlying and then obviously in the after years, FY 'twenty one, 'twenty three when margin is going to be increasing? Thank you.
So first of all, in terms of the capital expenditure, the reason the bulk of the spend, the increase in the spend has been driven by support for digital, as Marco outlined in the presentation, and also store refreshes and refurbishments. And we expect the refurbishment program to really step up towards the end of the second year and into the 3rd 4th years of the financial plan that we have, largely because clearly we are currently undergoing a creative transition with the change in our Chief Creative Officer. And therefore, we've staged this according to allow that to take effect. We will be in store refreshes, so you will see some change there, but the larger program will really kick in a number of years later. It takes a while to plan these things, I'm sure you appreciate.
So that's on the capital expenditure. In terms of the cost and the underlying inflation on the cost base, it's really at around 4% at the moment. And we anticipate it's staying at around that level going forward, and that's what we've put in our overall modeling assumption. Combination of obviously SAI increases, we've got a large presence in Asia, which impacts that. And then the other side, of course, is the voice renewals, which are also based on the rates we're achieving at the moment.
Suzanne,
Susanne Akos from Berenberg. I have two questions, please. First of all, maybe on the retail experience. I mean, this I understand is a big part of the strategy as well, and you've already spent some time at Burberry. So I would be just interested to hear what you think needs to be changed in Burberry stores.
How do you see the overall retail experience evolving in the industry? And maybe more specifically, when we could expect to see the new store concept to be presented? And secondly, I'll turn to people because you've mentioned this is an important area of focus for you. As a part of your strategy, you obviously plan to also focus more on omnichannel. And I feel like currently in the industry, let's say, the incentive system doesn't necessarily encourage it for the sales associates to have their customers shop online.
So I was just wondering, as a part of changing the business, do you also plan to change the incentive systems for the Feizer associates? Or any changes to the KPIs held in place?
Well, in fact, customer experience and refreshing the customer experience is an important part of our plan. In digital, we're already taking steps. Digital is perhaps the first gateway to the brand. As we know, customers inform themselves primarily through digital even before they push the doors of our stores. So there, we have already made an important renewal in our website and we're working to even a bigger renewal of our website coming next at the beginning of next year.
There will be more content. There will be as a prospect, it will be much more curated. The offer will be paid off for digital. So we expect that to be quite an important step for us. In terms of the stores, the physical refresh of the store is an important task, but it's not the only task.
As we said, we will start with refreshing. That will happen fairly soon, actually at the beginning of next year again. And then we will move on as we laid out in the plan with deploying a new store concept as we move on towards the end of the 2nd year and the 3rd year and on to the rest of the plan. But there are many other actions that we're implementing, working with our teams, working, as we said, with our managers and our associates in really developing clientele today. And we are preparing the tools, the digital tools for them.
Some of them are being deployed now. They are already quite ahead in those initiatives. Other will be deployed over the course of next year to give them the best tools, the most competitive tools in the market to clientele and to keep the communication and the relation with their customers. Training is going to be another aspect that is fundamental for us because as we define and precise our positioning, there will be plenty of categories and interactions with the client that we want to develop and that we want to evolve. So we have a significant training program and ideas that will go in that area too.
In terms of the commission system, this is something that we keep always under review. It will be also reviewed as part of this process is being reviewed. As I said, digital has been for us already a reality for a long time. So we have a pretty good head start in that. And digital is today fully integrated in the mindset of our sales people since, I would say, quite a
while.
I have two questions, please.
The first one is how you committed
to the see now, buy now strategy for the next 5 years? And the second one is, what are you looking for in a creative designer? Maybe to help us narrow down a little bit the profile that you're searching.
I'll start with the second, if you don't mind. As I said, the process is starting. And clearly, part of the process is defining the criteria that we think will be fundamental for us in a designer. But that's all we're going to say there. We are not going to go more in detail and speak about the criteria today.
The See Now, Buy Now is something we are deeply committed to the direct to consumer approach. It's fundamental today. Immediacy is part of the way customers expect to access brands. So we are very committed to that. In fact, as I we said in the presentation, I think Judy said it too, we are thinking the other element that is really changing is the velocity and also the continuous engagement with the customers.
They don't expect anymore to come and see 2 collections a year to come to the store a couple of times or 4 times a year. They want to find novelty very often. So and this is physical and digital, by the way, because now they shop exactly in the same way across the two channels. So our aim is to create more velocity in the way we go to the consumer and more frequency, in particular, with our deliveries. So we will look to collections that will be more edited, but will be more frequent, either as collections themselves or capsules or initiatives in the product area, which will have almost always, I would say, a direct to consumer approach because this is fundamental.
Mario?
Mario?
Mario? Mario Stelio of Bernstein.
Mr. Gobek, you highlighted in a very clear way your strategy for planned elevation. I'm sorry.
You highlighted in a very clear way your strategy for planned elevation. But you've got also an ambitious target to keep revenue and margins flat for the next 2 years, which is really ambitious, if I may. In these two years, you will find many times a trade off between the spotless implementation of your brand elevation strategy and not to lose too much revenues or too much profit in the shorter term, what you will be prioritized, the spotless implementation on a strategy or the short term point? Because for example, you highlighted your gradual decrease or cut down of wholesale door, but also wholesalers will order less Burberry because it's changing skin. And so I don't want to take many risks, just to make an example.
The second question is about the role of ready to wear and creativity in your journey to reach this brand elevation. You envision a sharp creative change like we have seen at Gucci to create a wow effect on the customer? Or you envision more gradual change of creativity that we will see in the ready to wear collection? Thank you. And if I may, a last word, thank you very much to Mr.
Bailey to be great, frank and do well in dealing with financial community that many times can be very
annoying? So on the first part of your question, my immediate answer would be this is what they pay me for, to manage through this exactly through this, through the balancing of decisions that need to be long term with a sound and disciplined approach to results. This is a public company, and we are shareholders that expect and will receive good remuneration from their investment. So we have a plan. We think we have a plan that is based on, as we said before, on reviewing some investments in reviewing entire wholesale distribution, a marginal collapse reduction of space as we align our retail distribution, being that mainline or outlet.
And a cautious approach to growth because we know that we're going through a creative transition. I have been through a couple of those. I know that it's a period where we need to manage very finely the business very, very carefully and very precisely. So the long term direction is clear, and we will work on the long term direction without hesitation. Clearly, we will look at the context.
We will look at the phasing. We will look at the general context of the market. And but we will not lose sight of what is our overall ambition. In terms of creative change, I we start, as I said, from great assets, okay? Some great assets that certainly other brands have in terms of heritage or in terms of other assets.
But we also have categories that are really iconic here and products that are really iconic. So we have a large customer base. Burberry is one of the in terms of brand awareness, is one of really the top, top, top brands. So we have no intention of alienating our customer base. We want to take that base on our journey with us.
They demand more fashion. They demand more newness. And this is the aim we will have in there. At the same time, we know that we have an opportunity to capture some customers from other players. And we will do that through a new creative vision that will look at the whole offer of delivery comprehensively, but on the basis of categories and areas where we already have strength and where we want to absolutely continue with that strength so that our customers will find themselves within the new creative vision.
Rogerio Fademie from RBC Capital Markets. I think you articulated that in the outer years, you see scope for margins to go up from 17% to 20%. Do you see scope within that plan for gross margins to go higher? Burberry gross margins are very high, similar to Hermes. So within this plan, do you see the need to invest more on products to offer the value for money to position to gain market share?
So that's my first question. And my second question is that within this plan given your focus on leather and more space in stores for leather goods, do you see the accessories component in the mix growing from 40 quarter to half of group sales given this focus on weather? Yes, maybe I'll start with it. As we laid out, we think that there will be meaningful margin expansion in the outer years. That will come from a number of areas, obviously, growth being 1, centralizing power that we will have and the difference playing moving parts, geographical mix, product mix and all of that.
So we think that we have that opportunity, and we are still getting to our plan. Leather Goods, as far as leather goods is concerned, as we said, we think the leather goods will outpace other categories and can grow faster than other categories. We don't have a specific number that we're going to guide you to in terms of the share of accessories. Actually, we're talking about all accessories, I believe. I think we have certainly strengthened potential for growth significantly in the leather goods category, being large leather goods or small leather goods, In some new accessories, in shoes, in custom jewelry, those are opportunities for us.
They are also traffic gliders, and we're very mindful of those areas which are fundamental to attracting customers. And we think that we can keep and develop on our leadership in the soft accessories, which are for us very important. And they can contribute marginally, but they can contribute also to the growth of the category overall.
Marco's comment on the gross margin, specific question on the gross margin, There are a number of factors within this, but broadly, we would expect this to be broadly stable. We've got the G and A mix probably going in the favor of the gross margin, obviously through expansion in Asia, but also we've got a product mix actually going on in the move more towards fashion. But when we look at this in some depth and broadly the financial guidance would be gross margin would be broadly