Good morning, ladies and gentlemen, and welcome to the Burberry First Quarter Trading Update Analyst and Investor Conference Call. My name
is Chach, and I'll be the coordinator for today's conference. Throughout the call, your lines will
be on listen only. However, at
the end of the update, you'll have the opportunity to ask questions. I'll now hand you over to your host, Julie Brown, Chief Operating and Financial Officer to begin today's conference. Thank you. Thank you, and good morning, and welcome to Burberry's 1st quarter trading update conference call. Before I begin, I would like to say how delighted I am to be working with Marco Gabetti now that he has taken up the role of CEO.
Marco comes to Burberry with a wealth of luxury industry experience, and I'm excited to be working alongside him and Christopher as we position Burberry for a great future. I will make some brief comments on this morning's announcement and there are some slides to accompany the call available on the IR section of the website. And I'll cover 3 main areas. 1st, an overview of our retail sales growth by region. Second, our progress against our 5 key pillars and finally, the outlook.
With me this morning is Charlotte Cowley, our Head of Investor Relations, and we'll be happy to take your questions later on. So first, our Q1 retail revenue performance. Underlying revenue was up 3% at constant exchange rates and up 13% at reported exchange rates to GBP478,000,000. Comparable sales were up 4% driven by volume. Mainline footfall remained challenging, but this was offset by improvements in conversion.
Timing of store footprint changes meant that our net space was down year on year, which reduced revenues by 1 percentage point. Turning to retail comp performance by region. 1st, Asia was up a mid single digit percentage, improved from Q4, driven by Mainland China, which delivered mid teens comparable sales growth as Chinese consumer confidence continued to rebound. Hong Kong, where we are pleased, football trends have improved with growth in the numbers of traveling Chinese customers entering the market. But 3rd, our 3rd largest market in Asia, Korea, declined again as we continue to be impacted by the macro environment.
2nd, comparable store sales in EMEA grew at a high single digit percentage. The UK continued to lead the growth, albeit the sales trend decelerated towards the end of the quarter as we anniversaried the significant depreciation in sterling in June 2016. Similarly, across Continental Europe, spending from traveling luxury customers softened with particular weakness in Italy. And in the Middle East, it remained a challenging environment, principally due to the macro situation. Finally, by region, the Americas declined by a low single digit percentage.
The strong U. S. Dollar again negatively impacted both local and tourist spending in the U. S. Conversion continued to improve due to a very successful Burberry private client program, which partially offset the decline in footfall.
Byproduct in mainline stores, fashion again outperformed replenishment, as we see in an industry increasingly driven by innovation. By category, accessories again outperformed led by bags, which were up by a mid teens percentage in the quarter. Customers responded positively to our new DK88 bag, which was our number 4 best selling shape in the quarter. And we continue to have great success with our new tropical guberdene trench coat. Looking ahead, we have a strong product pipeline with smaller DK88 bags and a wider color range, as well as new innovations in soft outerwear and leather building in the second half.
Now I would like to update you on the progress against our 5 key pillars. 1st, under product. With the industry being driven by fashion and newness, we are focused further on increasing the visibility of this in our product. We reduced our number of SKUs in the May market by over 10% on top of the 15% to 20% reduction last year. Not only has this allowed more prominence to the fashion components within our collection, but it has also improved the consistency of product globally, enabled our stores to buy deeper, improving overall stock availability.
We are also pleased that the transition of Beauty to a strategic partnership with Coty is progressing as planned and still expected to complete in October. Secondly, under productive space, conversion improved in all regions and spending from our top customers again grew reflecting our investment in VIBRI private clients and expansion in customer value management program and increasing the numbers of appointments year on year. We introduced a new POS system in the UK, which benefits our traveling customers through point of sale processing of VAT refunds. The rollout of this system will continue across EMEA through the year. Thirdly, under e commerce, we are benefiting from our early entry into digital at 3 levels.
1st, our digital presence increased our marketing reach and engagement with the Burberry brand. 2nd, we were one of the 1st luxury brands to build a global e commerce platform. And third, by leveraging the wealth of data collected in recent years, we have significant analytical and customer intelligence to inform marketing decisions, enable us to deliver a more focused and targeted campaign. For example, the Burberry app has now launched in 5 countries and the technology allows enhanced interactions with our consumers and improved brand experience and benefiting from data, we're able to deliver a more personalized storytelling experience. With over 70% of our retail sales now influenced by digital, we will continue to invest and develop our omni channel proposition.
In this quarter, our direct to consumer e commerce business continued to grow. Mobile again took share, now accounting for 40% of direct to consumer revenues, up from 30% last year. And we again saw benefits of enhancing our localized China site with sales more than doubling compared to the prior year. Fourthly, under operational excellence, we are on track to deliver $50,000,000 of cumulative cost savings this year as previously guided. The establishment of Burberry Business Services in Leeds is progressing on schedule and will begin to be operational from October.
We implemented a new product lifecycle management tool at the end of June that will enable commercial and operational benefits through the more timely development of products, increased automation and enhanced vendor and supplier collaboration. And finally, under inspired people, we launched an ambitious new 5 year responsibility strategy creating tomorrow's heritage, including the establishment of Burberry Materials Futures Research Group at the Royal College of Art. And we continue to strengthen the leadership team with new hires in the quarter in strategy and in Americas, as well as adding expertise in technology and product matters as discussed with you previously. And just to update you on our share repurchase program, we've completed the remaining $50,000,000 of our initial $150,000,000 buyback program and we will shortly commence the $300,000,000 that we have committed to execute by the end of March 2018. Now turning to guidance.
There is no change to our outlook for retail space or licensing revenue compared to May. However, we now expect total underlying wholesale revenue in the first half of full year 'eighteen to be broadly flat, reflecting less business disruption in Beauty than we previously anticipated. In the second half of the year, however, we expect wholesale to be negative. This reflects the transition of Beauty to a licensed business model, and we also expect wholesale excluding Beauty to decline at constant exchange rates due to ongoing brand control. On adjusted PBT, our guidance for full year 2018 at constant currency is maintained.
However, taking the 30th June exchange rate, we now expect currency to be a €25,000,000 headwind, a touch less negative than the €30,000,000 headwind based on exchange rates on the 28th April. And finally, in terms of outlook, while we are pleased with our performance this quarter, it is optimal this quarter and the comparators get more challenging from the current quarter onwards, in particular as we analyze the exceptional growth rate seen in the UK last year following Brexit and Sterling devaluation. In conclusion, in an industry increasingly driven by fashion, we are encouraged that our newest product is resonating well with customers. Our senior management team is now in place with Marco taking the position of CEO earlier this month and new talent recruited to complement our existing teams. We have much more work to do as we continue to focus on our brand, our product and the execution of our plans to capitalize on the opportunities ahead.
And with that, Charlotte and I would now be very happy to take your questions. Thank you. Thank
Our first question is from Elena Mariani from Morgan Stanley.
Go ahead. Hi, good morning all. A few questions from me, please. Firstly, on your regional trends, how would you explain your deceleration in Continental Europe? Do you feel it was related to Chinese customers purchasing less?
And which differences did you see across countries? You mentioned Italy being more difficult, but how about France and other countries? And did Chinese spending compare with your previous quarter, please? Secondly, on the UK, what exactly have you observed in the last couple of weeks? What is a more normalized level of like for like that we should expect from this country going forward given the very challenging comp base?
And can you remind us of the curious versus local purchase split in this country, please? And finally, on your wholesale guidance, if I'm correct, it is unusual for you to give guidance on H2 early on in the year. Could you give us some more color around it? Is this reflecting a different view on wholesale distribution from the new CEO perhaps? And could you broadly quantify this decline?
Are we talking about a low single digit decline or a more meaningful one? Thank you.
Okay. Thank you very much. Let's take those questions in order. So in terms of Continental Europe, the biggest factor in Continental Europe was certainly Italy. And here we anticipate, we haven't seen other people's results yet, but we do anticipate that there is some competition there coming from some of the brands where Italy is the home market.
So there is a sort of a factor there. The second thing is with regard to France. We did see a strong rebound in France in the Q4 of the previous year. So probably because it was annualized in the terrorist attacks in France in the previous year to that, We did see a rebound in France. That has become more subdued in our Q1 effectively, which we believe is a macro trend.
And in terms of China, I can come back to Chinese spend. I'll come to Chinese spend globally and then reflect on the distribution. So in terms of Chinese spend globally, we saw a very similar trend in the Q1 to that that we saw in the second half of the previous year. So very similar, we're confident about Chinese in terms of consumption levels. It continues to be positive and we've seen a continuation of the trends and it was broadly Q1 was the same as second half last year.
In terms of China and where the Chinese are spending, we've seen strength in Mainland China. It's been more pronounced than it has been regarding tourists, both in the UK and in Continental Europe. So moving on then to the question about the UK and the last couple of weeks in the UK. Probably important to split the UK between the tourists and the locals. So in terms of the tourists, what we saw is in the last couple of weeks of the quarter, because we were up against some very, very stiff competition comps, I should say, because of the sterling depreciation, the U.
K. Decelerated relating to tourist expenditure because of those growth rates being very high in the previous period. In terms of locals, the local population in the K. Remained very strong and in fact increased during the course of the quarter towards the end. So the local U.
K. Is very strong. The tourists, because of the comps, have weakened or decelerated at the end of the period. And then finally, moving on to wholesale. As far as wholesale is concerned, we don't normally guide on the second half, but because essentially we've got line of sight at the moment around about 70% of our order book, it closes in September.
But because we've had an improvement in the first half relating to beauty, we wanted people to be aware that we will continue to do brand control activities. As we highlighted really with our full year results, we'll continue to do brand control activities in the second half, particularly in the U. S. And therefore we do expect to see a decline in wholesale in the second half. You mentioned is this to do with Marco joining the business.
The answer to that question is no. This was something that we were embarking on, as you know, over a number of years. And you definitely saw us doing it in full year 'seventeen. And we'll continue to do that in the second half of full year 'eighteen. Thank
you. Just a couple of follow ups. Is it possible to quantify this decline? Are we talking about low single digit decline, high single digit, if possible? And then secondly, I didn't really understand the point about Italy and the complication from
some local brands. Did you mention the fact that some local brands were stronger than other brands? Thank you. Okay. So just to explain that, the wholesale second half decline, we would expect it to offset the upgrade that we've had in the first half.
So we've had an improvement in the first half and basically we're saying we're expecting half 2 to broadly offset that. So wholesale for the year, we were expected to remain broadly consistent. Just coming back on Italy, what I was referring to really is some of the leading international brands where Italy is their home market, we do expect them to be stronger, although we've got no results at this stage. So it's just really what we're expecting to happen. It's a very diverse market, as you know, Italy and really nothing further to say
on that.
Thank you very much. Very clear. Thank you.
Our next question is from Thomas Chauvet from Citi. Thomas, please go ahead.
Good morning, Julie, Charlotte. I've got 3 questions, please. The first one on the improvements in LFL. Was fair to think that it's been just driven really by the success of seasonal fashion innovation product rather than replenishment? I understand product newness is key to drive footfall and conversion, as you said, but I'm sure you don't want your higher margin classic heritage trench coats and scoffs business to disappear.
So how did these categories perform in the quarter? Are they still negative overall? Secondly, I had a question on the outlet business. How much of your retail sales were generated in outlets in the Q1? More broadly, where do they stand now?
How did it grow versus your full price stores? My guess it's probably outperforming strongly. Understand your view of outlets, it's a natural clearance channel. Nevertheless, it's growing nicely, I think, at the industry level. The store count of your outlets is also increasing.
So it'd be great to get some numbers and for you to as Mark Okabeza is joining to give us a view on the outlet strategy. And finally, on currencies and pricing, with the dollar and Asian currencies having generally weakened versus the GBP and euro in the last 3 months or so. I was wondering whether you had any opportunity to pass on price increase in the U. S. And Asia later this year.
Thank you.
Okay. Thank you. Thank you very much. I'll take the like for like and the outlet. And Marco, I think store counts, Charlotte can take and then I'll come back on currency and the price.
So in terms of why the improvements in the like for like, we are very, very focused on retail excellence and productive space. And we saw a good improvement in conversion and retention improved through the quarter. The other highlight is we've seen strength in accessories. So the bags components have done very well again in the teens growth. And we're also seeing strength in fashion and newness.
So we're really pleased about that. As you mentioned, we continue to have pressure on replan and heritage and this is because really the market is being driven increasingly by fashion and newness. I think the other thing we're pleased about, we've got some new hires in the business. And whilst it's very early days, we are increasing the talent in the business through a new Chief Merchandising Officer. We've got Claudio Plant joining us from Net A Porter, etcetera.
And it's early days, but we're starting to see an impact from some of the new talent mixing in with some of our existing talent. So overall, we're pleased with the comp, but probably important to say as well that this is a small quarter. And of the 4 quarters, we were up against the easiest comparative base with this set of results. So I want to be completely open and honest about that. In terms of outlets, nothing particularly to say in terms of the growth versus the mainline.
Clearly, our strategy is very much focused on the mainline and improving productivity of space. And Marco is joining the business as the new CEO. But and clearly we'll look at the channel distribution across all the channels and how we use them. I think the main focus really is to ensure that the wholesale channel is complementary to the brand. And the image that the wholesale channel, in particular in the United States presents is consistent with our retail presence.
And that's really our biggest focus when it comes to channel utilization. So maybe Charlotte can take the stores and then I'll come back on currency.
Yes. Just in terms of the store numbers in the space, Thomas. So actually, we closed one out this quarter. As you know, the plan, as Julie said, is predicated on focusing on improving productivity of the mainline stores. So net reduction in number of outlets across the piece.
And then in terms of the space piece, it really is just phasing. So, still, no change to our expectation in terms of space being pretty much unchanged by the end of the
year. The way it's Lein Strauss. I believe they're outperforming. Is it something you can comment on and elaborate really on what is driving the MFR between outlets and full price stores? It feels at industry level that the consumer is more and more reluctant to pay at full price, be it in the wholesale channel or even in retail or even online.
Is the outlet outperforming meaningfully mainline stores in Q1?
So as we never talk about
the difference between the performance of
the outlet and the mainline. You've seen our comments that we're pleased that conversion is improving in our mainline stores, retention is improving in terms of our customers returning and repeat spending for us in mainline stores. So that's clearly where we're looking to grow the business.
Okay. Just coming back on the currency. As you mentioned, the euro at the 30th June was down to 1.15 to sterling and the Chinese, remember, was down to 8.80. We continue to review this, as you know, Thomas, against our global pricing architecture on an ongoing basis. We made some serious changes to prices last year.
We've got the indices now. We index all the major countries again sterling, the sterling price. And we're broadly in line with where we want to be. There may be some adjustments later in the year, but it's going to be nothing of the order of magnitude that we saw in 2016, 'seventeen. So nothing really to report on that.
Our next question is from Helen Brand from UBS. Helen, please go ahead.
Hi, good morning. Just three questions
from me. I guess, first of all, from Marco's perspective, what's his best priorities now he's taken over the CEO role for the next few months? And are there any early views on from him on the Asian business that perhaps you can share
with us?
And secondly, the online business clearly been growing pretty fast in Asia helped by the website relaunch in Mainland China. But can you give us more color on the growth rates in EMEA and the Americas? And do you have any plans to perhaps start disclosing this number given how channels are shifting in the industry at the moment? And finally, in the release, you talked about newness in H2, which I think will be targeted across the trench and scarves and leather. Can you give us any more detail around what we should expect in terms of newness in the second half and how that can drive comp?
Thank you. Okay. Thanks very
much, Sally. So I'll take the question about Marco. And Charlotte is going to take the question about the more color on the growth in Europe and Americas. And then I'll take the newness from Fashion Point. So yes, I know that I've I've spent quite a bit of time with Marco.
He's I think he really feels that we've got great people with real energy a commitment to change. And we both had exactly the same impression joining Burberry new. There is something incredibly special about the Burberry culture and people's energy and commitment to change. In terms of the areas that he's identified, I think we are all very focused on the newness and fashion. And we expect that to move more and more into our commercial product offering.
His focus very much in Asia has been on ensuring the stores are appropriately merchandised and laid out so that the customer can see the new product and have a true luxury experience. And we're also continuing to be very focused on retail excellence, ensuring that our staff have the appropriate training and also that we offer a consistently high level of service globally, even more so now that our consumer is so well informed. And likewise, we're also continuing on the agenda
of simplification.
Simplification of the ways of working and simplification of the organization overall. So in summary, Mark has spent a lot of time with the Asian teams. He's been a very active member of our senior leadership team, been involved in the decision in that forum. And then our agent team has been very energized by working with him. And his particular focus has been productivity, merchandising and also the store concept and the store layout.
So with that, I'll hand to Charlotte on the
Judy, may I just follow-up just quickly. You didn't mention the U. S. There in terms of priorities. Is that something that Mark is going to be looking at going forward?
And just in terms of that U. S, how is he thinking about the right distribution footprint
for Belvieu in the U. S? Yes. I mean, I didn't mention the U. S.
Because he hasn't been able to go to the U. S. Under the until he was becoming the CEO. But I have to say that on his 1st day as the CEO, Marco went to the U. S.
So I think that probably tells you how important he sees that market. So he's already visited our New York, our department stores and our offices in New York. We see the U. S. As being really important.
We expect a continuation of some of the things we talked about with you already in May in terms of ensuring we see wholesale is important to us. It's a very, very good opportunity to introduce a luxury consumer to the Burberry brand because they can see multiple brands in the department store. But at the same time with the heavy discounting that's occurring in the U. S, we're very focused on ensuring that the inventory levels that go into the U. S.
Wholesalers, the sell in and the sell out matches. We put a lot of emphasis on the data that we're collecting from our wholesalers to ensure that that is the case. And we're also very keen to ensure that our brand is presented in a way that's consistent with the retail channel. And I think Marco will continue. He will spend more time in the U.
S. I'm sure and in Europe, which are the 2 regions he hasn't been able to spend time in to date. And then we will further the strategy on that basis. So Charlotte, over to you for the second one.
Yes. So, on digital, I think we're unlikely to strip it out as a number on its own, very much seeing that continued focus on omni channel. As you know, the stat we've been sharing with you is about 70% of our retail sales are influenced by digital, but clearly it's a much lower percentage of direct revenue. Pleased that the direct to consumer business is growing and you can certainly see the shift in terms of mobile now actually being a true channel there rather than just being used to research. So people now shopping on mobile, they're seeing us continue to invest in that channel.
On regional performance, the Americas certainly is impacted as Julie has been articulating terms of the standalone store business in physical retail as much as digital.
Just coming back on the final part of the question related to newness. The focus which will come up in the autumn is continuing to roll out the bag range with extending the DK88 range. So we'll go into the market with a smaller bag, the DK88 at the moment is quite a large bag. We'll move into smaller bags and also a much wider color range and innovation around colors. The 2nd major area relates to soft, which is predominantly scarves.
Outerwear is also going to be a focus and continuing to build the leather franchise from the second half. So yes, we've got a lot of innovation coming your way. The wholesalers in looking at the May market, we're very excited about it and we'll continue to roll those out in November and possibly a little bit earlier than that. A lot of excitement around the share room. The share room was fantastic.
Speaking personally, having seen it, it was fantastic.
Great. Thank you very much.
Thanks, Helen. Our next question is from John Guy from MainFirst Bank. John, please go ahead.
A couple of questions, please.
First of all, just with regards to
the LFL, can you split out the volume and value components from the LFL? I'm sort of assuming that the bulk of the growth has come from volume overvalue, but just if you could provide the details, that would be great. And Judy, your comments around taking effectively more control over the wholesale distribution. You highlighted the U. S, where there's probably more work to be done.
But could you also comment on Europe? And I appreciate that the Asia business is more highly skewed towards retail. But if there's anything within the wholesale channel there that needs to be looked at as well, Appreciate any sort of further comments there to start with. Thanks.
Okay. Thank you very much. So in terms of like for like, the growth was all coming through volume. There was a small negative on price, predominantly relating to the price reductions we took largely in Asia that we took in full year 2017. We didn't give the specific split of price and volume.
But basically, we had a small negative on price and overall very good increase in volume and the like for like comp of 4%. As you know, space was minus 1%, taking the underlying growth rate down to 3%. In terms of wholesale distribution, the focus is very much on ensuring our brand. Obviously, our brand is our biggest asset and ensuring the brand is presented in a uniform way across the world. So no matter where it is in the world, where we see that not occurring, we would take action.
But in terms of by region, the big focus predominantly is on the U. S. Because this is where we've seen how the discounting and the presentation of some of those brands in the department stores where they will put them on racks at the top of elevators with discounts signs over the top of them. We don't want to be tied up in some of that activity. So it's really being predominantly controlling where we are with U.
S. Department stores to ensure it's presented fairly and appropriately to the retail arm.
So, Julian, maybe just on that. I mean,
if wholesale in the U. S. Is roughly just about just over 30% of the businesses, do you expect this to halve over the course of the next 3 years? Can you sort of quantify the size of the rationalization within the U. S.
Wholesale that's likely to happen?
Yes. The split in the U. S. At the moment is 70, 30. You did ask the question as well about Asia where it is 90, 10 in favor of retail.
In terms of the U. S, we haven't put a specific number on it. And it really does depend on the interactions and the, I guess, the level of consistency in terms of where the wholesaler wants to take the business. So we haven't put a specific number on it yet, but we're clearly working with our partners to ensure the brand is presented properly. I mean wholesale, as I mentioned on the call, wholesale is still a really important part of our business.
Still a really great entry point for the luxury consumer. And we've got some great wholesale relationships. So I think it's just going to depend how that all develops alongside the U. S. Macro situation.
Our next question is from Luca Solca from Exane BNP Paribas.
I I have a specific question on the design partnership that you had with Gaucherubrindrubzinski. I wonder how satisfied you are and if you envisage more of that in the future to support newness and innovation. Thank you.
Okay. Thank you. Thank you very much, Luca. Yes, we were delighted. It's something that Christopher has been admiring his work for quite a while and I think we were delighted to be offered the opportunity to be able to do that.
It is really all about, I think, using some of the traditional heritage Burberry check, but using it in a very innovative, it's basically about reinvention of some of our core icons. So we've been really pleased with how that collaboration has worked. In terms of we really like partnering with people, with brands and companies that we admire. And we've also done that with other digital initiatives, for instance, with Apple, Snapchat and Twitter. And it's a really exciting time for design and creativity to allow these partnerships to build and to foster authentic relationships.
We expect this collaboration with the negotiates to be a one off, but and the next real new collection will be coming in London Fashion Week with our September show.
Understood. Thank you very much indeed.
Thank you.
Our next question is from Erinn Lebronberg from HSBC. I
was wondering if you could mention Korea because obviously Korea has been through a lot, notably in terms of travel bans from China, but I believe that's been lifted. And then I'm just wondering if you're seeing a bit of a pickup in Korea. I have another question on Asia relative to the Hong Kong situation because seems to be stabilizing for the sector and for yourselves there. And I'm just wondering if that has positive margin implications relative to possibly rents coming down now after 3.5 years of tough situation, hopefully, the landlords are becoming a bit more reasonable? And then thirdly, sorry to belabor the point that Jean Michel was making, but obviously I'm probably under the influence being based in New York and having been to Woodbury Commons recently and to your 57th Street full price location, where do you think is the appropriate footprint in terms of outlets versus full price?
You're higher than the sort of Continental European brands in terms of footprint. Obviously, you're much lower than the value from any American brands. What's the appropriate level to be at? And I think Charlotte mentioned that you had closed an outlet recently. Where was that?
And what's the plan for the upcoming quarters? Thank you.
Okay. So I'll start off with Korea and Asia and then Charlotte can talk about the footprint and the outlook. So in terms of Korea, we actually had exactly the same result in Korea in the Q1 as we had in the Q4 of last year. Although the ban has been lifted, what we still see is basically macro sentiment in Korea is still caused a depression in sales. So we had the decline really moderate decline started in the 3rd quarter moved to be more serious in the 4th and it's really continued into the first.
So we haven't seen an improvement as yet. But I think we should see it going in the right direction. In our business in Korea, it is 95% Hong Kong has definitely shown an improvement. Hong Kong has definitely shown an improvement. So we had quite serious negative results at the beginning of 2016, 2017 financial year relation to Hong Kong, and we've seen a definite improvement in the Q1.
It's now just very, very marginally negative, broadly flat, we would say with Hong Kong. And there are 2 factors within there. 1 is relating to price, because we did reduce Asian prices. So we've got a price headwind that we're currently encountering in the Hong Kong business. But we are seeing generally changes in footfall, which has improved.
And conversion has been on an improving trend generally over the course of the last 12 months. So we're more optimistic about Hong Kong in terms of overall. In terms of the rents, we're not expecting any significant changes in rents. We had some very positive negotiations during the course of 'sixteen, but no significant changes in rents now anticipated. And that's all been built into our PBT guidance.
So no change to margins with regard to that. And with that, I'll hand to Charlotte to talk about footprint. Yes. So in terms of footprint, I think
there are some I've seen some assumptions in terms of the potential of the business, I think, that are higher than we see. So that's the first point. And then second point, yes, there's one that closed within Italy in the quarter, and I would expect maybe 1 or 2 other closures as we go through the year.
And the appropriate footprint eventually, do you think if you have like 20 or 22 locations in the U. S. And European Continental European peers have anywhere between 6 and 13, 14. Do you think you should go to that level eventually or?
I think I'd refer back to you, no one has made the comments that the plan for the business is to improve the productivity of the mainline stores, therefore improve your full price sell through in those mainline stores. Outlet is used as clearance.
If you improve your productivity
of mainline stores, you've got less product that needs to go through the outlet channel. So you should see it reduced, but I don't have a firm number to put on it today.
We have a question from Warwick O'Kees from Deutsche Bank.
On Phase 3 actually. Firstly, why do you think the consumer is so demanding for newness and fashion right now? And why in particular do you think that's not translating into stronger apparel performances for you? Secondly, are the comps actually getting much tougher? You referred to that twice, Julie, but Q1 twenty 16 was actually the last of the really strong mid single digit growth rate.
So on any anything beyond just looking 1 year, the comps actually don't get any tougher. And certainly, what changed in May June that explains your guidance change in beauty in the first half? Could you just explain that less disruption that you're seeing? Thank you.
Okay. Sure. So in terms of newness and fashion and the consumer demand, that's why it hasn't really impacted apparel as yet. I think what's happening generally is the majority of luxury customers now have established a wardrobe that they're comfortable with. So they tend to have a full range of clothing.
And what they're looking for is something that really brightens that up, provides some sort of spark and inspiration to them. So they're really looking for something that feels fresh, looks new, and in particular, we see this trend with the millennials. We see it in our own results in terms of the growth rates that we see between fashion and replan. And we've also seen it with particular examples within our range. So within our range, for instance, of trench coats, what we're finding is that the heritage the growth rates in heritage have slowed considerably.
But where we're finding very strong growth is something like Tropical Aberdeen. And in particular, the Horton style is doing extremely well. So the lighter weight fabric, it's got a sheen on it, if you've seen it, Warwick, and also the design. The design is sort of very fresh. So I think that gives you an indication about what people are looking for going forward.
In terms of coming through into the results with apparel, what we've definitely seen is that the leather goods segment is performing better than the apparel segment generally. I mean there could be a whole series of reasons for this. One is probably linked with discounting in the U. S, which is more so in apparel. But generally what we found also with the luxury data from the Bain studies is that whereas the market was flat in full year 2016, apparel actually declined by -4%.
So generally, I think apparel is more adversely affected by market trends. In terms of the comps getting more difficult, question you raised about that, we were really referring to the growth rates that we posted in comps last year. So we had to the quarter June 2016 minuteus 3%, but then September, December March quarters were positive in the 2% and three percent range. So it was minus 3%, plus 2%, plus 3%, plus 2%. So we're really just flagging that we were up against the weakest comp of the 4 quarters is really what we're flagging.
But my point, Julie, to that, I'm sorry about talking about 2 year stack comps, is that those numbers were the reason why you were minus 3% in Q1 last year was because it was up against the only good quarter from the prior year.
Because yes, because we were plus 9% Plus 6, I think. Yes, plus 6.
It is a feature, but
I think generally when we look at the trends, so for instance, if we take China as an example, because we've got a large part of our business with the Chinese consumer, we have seen considerable weakening in China in the first half of full year 'seventeen, similarly in Hong Kong, and they are becoming stronger. So that's really why we're just referring to the trend as to why the comps are going to start to become more challenging. It's also fair to say that Q1 this year is obviously a small quarter. Last year, Q2 was boosted by Brexit and sterling devaluation. Now I'm keen to answer the final question you had as well, which was related to beauty and the change in the guidance.
We as you know, we've entered this partnership with Coty. As part of that, following the announcement that we did the beginning of April, we've been dealing with all the major distributors of our beauty business. And at the stage when we gave the guidance at the beginning of May, there was no way of really knowing fully how each of them would react. Some of them could decide to just sell down the product that they have. Some could basically take the license with Coty and continue to order the stock.
And we didn't know exactly where it would land. We expected some level of disruption when you go into a change of this order of magnitude. We expected some level of disruption. And we really haven't had it at this stage. So basically, that's why we changed the guidance from Beauty being slightly negative to being flat.
So if I understand that correctly, that means that you've had more success with major distributors continuing the relationship than you had expected?
Yes. Yes, we have.
Brilliant. All right. Thank you very much.
Yes. Thank you. Operator, are there any more questions?
The Next question is from Mario Tully from Bernstein.
In your press release, you are right that footfall remain challenging. Have you seen any difference from region to region and geography to geography? The second question is about customers. It seems that you're increasing the conversion very well. Your top customer are driving the growth.
But what about sourcing new customer? It seems that your focus on extract value from the existing client is working very well, but probably is food fully declining. You are not so focused in sourcing new customer. And am I right or wrong? And what are you doing to address this point?
The last question is about markdowns. If we take the Q1 total sales, the incidence, the share of markdowns revenues is higher or lower than in the previous year? Thank you.
Okay. Thanks, Bill. Okay. So if I take football and also customers and Charlotte can maybe take the markdown question. Yes, so in terms of footfall across the geographies, clearly the market where we have the greatest challenge with footfall, which I think is a macro factor, is really around the U.
S. And here we are still negative in the U. S. Regarding footfall, but it improved in the Q1 compared with the second half of last year. So we have seen some signs of improvement there.
But it is obviously a trend in the U. S. And I think on a macro scale, this is clearly what's led to the wholesalers engaging in discounting to get the full fall up in the department stores. So overall, we see an improvement in the U. S.
As you mentioned, conversion is the thing that is driving the sales well, and this is really all to do with our focus on productive space and retail excellence. We're finding that the conversion stats are very strong against our with our top customers. And you're right in the sense that customer retention is positive, but new customers is where we need to do more. And you asked the question about what we're doing to address this. And what we're doing to address this is basically very much a focus on fashion and newness in the range.
So very much a focus on product and product innovation. Secondly, we are very focused on SKU rationalization, so that newness and fashion can show through in our stores. And thirdly, all around improving store layout to enable that fashion and unit to show through. And then finally, really to capitalize on that, it's all about attracting the traffic through the product and then converting, converting that successfully to a sale with existing and new customers. So we're doing a lot to address this point.
Charlotte, would you like to take the markdown question? Yes.
On markdown, so there's no real change in terms of duration or depth of markdown this season compared to others. As Julie is saying, we've been pleased to see that performance from the fashion portion of business, which of course is the chunk that ends up going into the markdown period. As you had less inventory going into markdown this year than we had last year. And really, so it's a full price business that's been driving these numbers rather than markdown.
Can I have an idea of what the share of your total retail revenues in Q1 is driven by markdowns?
No.
Thank
you. Our next question is from Julian Easthoek from Barclays. Julian, please go ahead.
I just got a quick question about culture. As you rightly pointed out, Burberry has a very specific culture about it. And over the last year, you've introduced a whole new strategy and then changed half of the operations board and the senior management team. So I just wonder and also had a €100,000,000 cost savings that's reduced it, that's resulted in quite a lot of redundancies. So I just wondered just in terms of what the mood is like now at Burberry, but also how the new board is gelling or the new operations board is gelling?
And if you could give some sort of initiatives of what the new teams actually brought with all their vast experience from outside the group?
Thanks. Okay. Okay, great. I think Burberry has undoubtedly got a unique culture. It's very I mean, people when I first joined, Christopher referred to it as a sort of Burberry family.
And everybody firmly believes in the brand and the success of the brand and what we're here to do. We have brought a lot of new people in. I think we've also got a strong internal team. And the idea is that we complement the strong internal team with people with particular areas of expertise. So examples of that would be Judy Collinson, who's joined from Dior.
She's now the Chief Merchandising Officer. Sabrina Bonisi, who's also joined from Dior, she's the new Design Director for Leather Goods and Shoes. And we've also got Claudia Plant having joined from Net a Porter, one of the cofounders of Net a Porter all around the brand experience. And that's in addition to recent hires that we've had in relation to our new U. S.
President, Jiang Lokey. And also, we've also had a new CIO join from Unilever. So I think in terms of what's happened to the culture as a consequence of this, I feel that people are very energized. I mean, we've got and I think my own team is a great example of this. I've got sort of 50% new people and 50% long standing Burberry employees.
And they've gelled incredibly well. And there's a real feeling of energy because of new ideas, but also appreciating the heritage and what's right about Burberry. So combining the 2, you get an amazing combination. Terms of what some of the new people have bought, I think Judy most of the people we're talking about have only been here a few months so far. Judy was already making her mark on the May market in terms of the way the product was displayed, in terms of the engagement with wholesalers.
And also recently we've held a retail conference with retail leaders across the world. And again, the energy and passion for the brand and the belief on what we do is really, really exciting, really exciting.
Thank you very much.
Okay. Thank you.
Our next question is from Rogerio Fujimori from RBC. RBC. Rogerio, please go ahead.
Hi, thanks. I have two quick questions. Was the growth for your millennial customer base higher than group average in Q1? And how this compares to second half last year? So if any qualitative comment would be useful, just to understand how Burberry is performing with younger consumers.
My second question is on women's. Could you talk about trends in the second half of last year? Was there any improvement given the success of tropical gathering? And then in Americas, your like for like was down low single digit and the U. S.
Is the most important market. So would it be fair to assume that sellout in U. S. Wholesale is also down low single digit? Thank you.
Thank you very much. So in terms of consumer groups, we don't actually split it out publicly. Clearly, we measure it internally, one of our key metrics to look at consumer groups. But we don't give that information externally. In terms of women's, we still had some challenge in the women's range broadly in the Q1.
This is largely relating to outerwear. Women's tropical gabardine has done really well. We've sold out in many markets and some styles in particular like the Horton style has done incredibly well. But overall in women's apparel it still continues to be somewhat of a challenge, which is very much why we're focused on the newness and fashion elements. It's also why we're excited about the new ranges that are going out in terms of soft leather and outerwear that will be launched in the autumn and through to November.
I'm really I'm thinking though having seen the new range in the May market that will start to hit stores in November. I think there will be considerable excitement about that. Okay. I think you had also a question on Americas and low single digit in Americas. Yes, I mean obviously our biggest market is Asia.
So Asia, we've seen a strengthening of the Asian results over the course of last quarter to this quarter, and we're now in mid single digit range in Asia. In Americas, we saw an improvement between the Q4 and the Q1 in Americas. And we saw a slight improvement in portfolio. We saw again ongoing continuous improvement in conversion in Americas. I think the thing in Americas is to 1st of all ensure the new product goes out there and the focus is on newness and fashion and innovation.
Secondly, the work we're doing on the wholesale channel is very important here and ensuring the brand is consistently positioned. And thirdly, continuing the focus on Burberry Private Clients where the average retail value of a Burberry Private Client is twice that of a normal average sales associate. And we want to continue to really ensure focus on productive space. Okay. I think those are all your questions, Rogerio.
Thank you. Thank you.
Our next question is from Melanie Flauquet from JPMorgan. Melanie, please go ahead.
Yes, good morning. Thank you for taking my question. I have 3 questions. The first one is regarding the gross by consumer base. In the last quarter, you were kind enough to give us growth by like for like, by nationality.
So I was wondering whether you could clarify a bit what happened to each nationality or the Chinese, the American and European that you did last time. And in Neutobium, the Chinese consumer, you mentioned that it was the same as H2, which was I believe mid single digit, but it has actually accelerated in Q4. It was my understanding too high single digits. So have we actually decelerated back? Would that be right?
I just want to make sure I have the right numbers. And then if we could get an idea of the American consumer base since the tourist is actually stronger than local and same for the Europeans once you strip out the tourist in Europe? And the second question is on the sequential trend within the quarter. I know I'm sure you don't want to comment month by month, but you're calling out a deceleration in the U. K.
Late in the quarter. So I was wondering whether you could actually let know whether this has been compensated by an acceleration elsewhere or whether the tip rate was actually slower overall in the segments. And my third question is on the ForEx impact of €25,000,000 negative that you are guiding to for this year. How much do you expect in H1 and in H2, please? Thank you.
Okay. Thank you very much. Thank you very much, Melanie. So just taking those in order. In terms of the customer base, in terms of China, we saw a similar trend in Q1 to the second half, but we have seen an acceleration in the 4th quarter.
So overall, our second half performance last year was a low single digit that transferred into a high single digit in the 4th quarter. And now we're seeing basically the average of those 2 quarters, a mid single digit growth percentage in the Chinese globally. Probably important to say here that we've seen considerable strength in Mainland China. So where the shopping has also changed, we've had mid teens growth in China as a country in the Mainland. But it's been offset by reduced tourist flows in Continental Europe and in the U.
K. So that's the Chinese. In terms of Americans, Americans for the full year last year were flat. We saw a slight downturn in the Q4 of 2017. And we've seen similarly a slight downturn also in the Q1 of 2018.
So broadly flat last year, but a slight worsening trend for Americans globally in the Q4. The other one to call out is the Brits. The Brits have been doing incredibly well. So we've seen an acceleration of growth quarter by quarter through the British. It was slightly negative at the beginning of Q1 2017, went into positives, went into double digits for the teens by the end of the Q4 of 'seventeen and into now higher than that, even higher than that.
So we've seen an ongoing acceleration in the British. Just turning to the second question because it's kind of linked with that, I want turn my attention to the U. K. Performance and the split that you mentioned around the sequential trend. So I'll split the U.
K. Between tourists and domestics. So in with regard to tourists, they're about 55% overall of the U. K. Business.
We did see a deceleration in tourists towards the end of the period. And so the growth rate started to come down. And this is largely because we were annualizing Brexit and we were annualizing some very, very tough comps because of Sterling being depreciated. Obviously, it was very attractive for people to shop in the U. K.
We saw an influx of tourists in the prior year and hence we've got really tough comps. So we have seen this deceleration, which we expect to see that also in the Q2. The UK domestic market, which is about 45% of our UK market overall, has shown incredible growth and continues to show incredible growth. And in fact, the trend of improving just continued all the way through this Q1 all the way to the end. So we're really happy about the overall sequential trend of U.
K. Domestic. If I just turn my attention to foreign exchange, as far as foreign exchange is concerned, we've got minus 25 for the full year. Splitting that out, we expect to have positive of 12 in the first half, largely as a result of sterling weakening in June 2016. And we expect to have negative foreign exchange impact in the second half in the order of minus 37%.
So that's the split of the number.
That's very helpful. And just to confirm, globally, sequentially, did you see a deceleration also in June? Or was this only U. K. And compensated by other markets accelerating?
No, we haven't gone into the specifics of that. One of the reasons we just to explain, we can't really unpick it completely is because during the May, June period, we also run the sale period. And separating out completely foreign currency, Brexit and markdown period is very difficult to do. So just to put that into context.
But you're able to identify whether June decelerated overall indeed in the U. K, but did it globally?
We very rarely go into sort of dissecting things month by month through a quarter, given
the extra color on the U. K.
Okay. Thank you very much.
Thank you.
We have no further questions. So I'll hand back to Julie to
conclude today's conference. Okay. Thank you very much for attending this morning. And just in summary, we're pleased with our performance in the quarter in a time of significant change for Burberry and the luxury industry in general. We have got more work to do.
We're building on the foundations that we have in place. And Marco and I look forward to speaking to you at the interim results, which will be on the 10th November. Thank you very much.