Okay. Hi, everybody, and welcome to Horseshoe House. Thank you so much for joining us for Burberry's preliminary results. We're continuing today with November's format, So you're seated at tables hosted by members of our senior leadership team. And I'm sure I'll be calling on some of the group to contribute during the Q and A later.
I'm extremely proud of the people that we have leading every part of the business. And so it's great to have so many of them here today from all around the world. I'm going to kick things off now by talking about our performance and what makes our brand so distinctive in the sector. Then I will hand over to Carol, who as you all know is our Chief Financial Officer to take you through the numbers. And as at previous meetings, we'll then cover a specific part of the business that's particularly topical.
Today, we'll focus on how we're using data and insight to add value across the business with a presentation from our Chief Customer Officer, Steve Sacks. And then we'll be glad to take your question. So with that, let's get going. Last year was a busy, but exciting one for me personally in my new role and a strong one for Burberry as we evolved our strategies for the next chapter. As a young old company, we have always looked to past as we have embraced the future.
And so last year perhaps more than any other was about going back to our roots, about remembering what made Burberry the company it is today and celebrating anew the timeless and authentic products that define our 159 year old brand. In so doing, we reinforced 2 crucial things. Firstly, our distinctive positioning with the consumer and secondly, our unique culture as an organization, both critically important as the world evolved rapidly around us and external challenges persisted for the sector as a whole. Against this backdrop, we dynamically managed the business to deliver a strong financial performance. Revenues were up 11% underlying to £2,500,000,000 and adjusted profit before tax up 7% underlying to £456,000,000 And retail was a highlight again despite traffic declines globally with revenues up 14% underlying, comps up 9% and continued outperformance globally from digital.
Regionally, we were pleased to report continued double digit growth in the Americas and EMEA. Gains in Asia were more subdued consistent with wider market challenges notably in the high margin market of Hong Kong where a slowdown in growth masked stronger results elsewhere in the region. This included base. And as Carol will explain, our cash generation was strong and we are pleased to recommend a 10% increase in the full year dividend as a result. Overall, while exchange rate movements negatively impacted reported numbers, the underlying health of the business remained robust and brand momentum continued underpinned by our ongoing investments in long term growth initiatives.
I'd now like to talk about what's driving this performance. In November, we set out 4 themes that underpin our evolved strategic agenda. These come under the following 4 headings: brand first famous for product customer centric and finally productive and responsible. These themes guide everything we do and I'll turn to them now in considering our achievements last year as well as some key areas of focus for the future. I'll begin with the principles of Brand First and Famous for Product emphatically asserted last year in a global celebration of our heritage.
At its core was our intense pride in the British made trench coats and cashmere scarves that are at the heart of our product universe. We radically simplified our heritage trench offering to 3 fits and 3 colors reinforcing the craft and provenance of this iconic piece and reconnecting the customer to its meaning and its purpose. This is a product for which we control every stage of its journey from the cottonseed all the way to the customer, distinctive in luxury apparel and ensuring flawless quality and a truly authentic end product. We also brought our iconic cashmere scarf center stage to launch our first monogramming service online as our product heritage became a springboard for product innovation. Including the successful launch of our My Burberry fragrance conceived as a trench coat in a bottle right down to its Yorkshire woven gabardine bow and the introduction of our runway poncho made in Scotland like our heritage scarves.
The success of this piece represented the best of our teams in action from design innovation to marketing and amplification to the agility of our supply chain in responding to unprecedented demand. Both are destined to be Burberry icons just like the products that inspire them. Every major brand initiative over the year restated our pride in the craft and story behind these products and in our British roots, together with the passion for digital and music that have become every bit as much a part of our identity today. Global events to mark the openings of new flagship stores have this distinctive brand signature at their core. From Dreams of London, which recreated the streets of our home city in a warehouse in downtown Shanghai to London in Los Angeles where the Queen's Grenadier Guards and James Corden led an unorthodox runway finale at the Griffiths Observatory last month, capping a major celebration of Britishness and music for the opening of our Rodeo Drive store.
Our runway shows and other events continued to inspire digital collaboration engaging consumers globally through existing partnerships like Twitter, Instagram and WeChat and newer relationships including Snapchat, Periscope and LINE, the Japanese messaging network that hosted our February Womenswear Show as its first ever live streamed fashion event. With more than 52,000,000 users in Japan, LINE is one of the world's fastest growing messaging platforms and the partnership was an important step in building Burberry's profile and awareness digitally in this priority market for the brand. And finally, this year's festive campaign celebrated our hometown and British talent on a global scale. With over 10,000,000 views of the campaign video online and 10,000,000 visitors to our window takeover at the iconic Paris department store Printemps, we were proud to take London with love to the world. In the year ahead, we will make our unique brand and product proposition just as unmistakable and every bit as unmissable, including through further brand and product initiatives that link back to our core with the scarf in especially sharp focus.
With continued marketing innovation on and offline and a sustained emphasis on unlocking the potential of digital as we reinforce our leadership in this area and with exciting plans ahead for beauty in particular this year. The energy with which we pursued these brand and product goals was mirrored by our commitment to being customer centric which is the third of our 4 guiding themes as we continue to invest to ensure customers have the best possible experience wherever and however they shop. Just as digital is a brand hallmark, it also defines our approach to the customer experience. And so the merging of our online and offline worlds was central to key initiatives over the year including the rollout of our collect in store program increasing customer choice in 200 locations globally the relaunch of our mobile site significantly enhancing the bogey.com experience in this high growth channel. The extension of our 3rd party digital relationships to expand reach and ensure a more authentic brand experience on platforms including Tmall, Amazon, Nordstrom and Shinsegae and the introduction in China of a new fulfillment approach that allows digital transactions to draw on inventory in both the local distribution center and the store network.
This pilot has significantly improved stock availability and reduced customer delivery times and will be rolled out to the U. K. And to the U. S. This year.
Stores remain a critical part of the customer experience in an omnichannel world and we continued to refine our physical presence over the year. With relocations and refurbishments including San Francisco, Los Angeles and Tokyo and 7 new airport stores predominantly in Europe reflecting the significant opportunities we see in the high growth travel retail channel. With total planned capital expenditure of around £180,000,000 this year, key openings will include Seoul, New York and another flagship in Tokyo as well as the upcoming launch of a new gifting store and cafe called Thomas' after our founder at our Regent Street store here in London. Alongside these openings, we continued last year 10 closures in China.
First, we analyzed what Chinese customers bought at home in the run up to Lunar New Year, what items they browse on our website before travel and what items they bought most frequently while traveling. We use this to build a detailed picture of their product preferences, including the style, fit, length, color and sizing for each product category. 2nd, we analyzed when and where Chinese customers were purchasing over the Lunar New Year period. The bar chart shows when the spend peak and the line shows the percent of spend at home rather than overseas. You can see it peaked at over 70% domestic in the New Year's week.
This enabled us to predict their shopping patterns by market and even by store. Using this data and analytics gave our merchandising allocation and retail teams insight to enable better decision making aimed at maximizing sales and profit. It allowed the regional teams and Donald's planning team to make sure that we had the right product in the right stores at the right time to satisfy our customers. It also allowed our retail teams to relocate Mandarin speakers into our stores to reflect these travel patterns and to focus our in store training to meet these customers' needs. Even at this early stage, we believe that these actions contributed to the 9% comp growth we delivered in the 4th quarter.
The second area where we use customer analytics is in our customer value management program, which aims to retain and grow the value of our existing customers, a key driver of growth for our business. This pyramid shows the segmentation of our customer base, which is built on the lifetime value and product preferences of each customer. While our Burberry private client team focuses on providing service to our most elite customers, the customer value management program is about expanding that personalization and service further down the pyramid. Currently, it focuses on the top elite, connoisseur and classic customers who account for over a third of our sales. We launched this program last year and rolled it out to all our mainline stores in October.
This has allowed our associates to reach out directly to more of our top customers and to provide them a more personalized service. What we believe makes the program powerful is its scope, scale and level of personalization. Well, at the heart of this is an analytical engine, what the customer receives is regular personal one to one communications from an associate. This includes invitations to experiences or events. In the 6 months since launch, we have sent out over 10,000 event invitations including to a handful of our top clients who were invited to our recent LA event.
This includes suggestions for the perfect product. For each new season or collection, our top customers are engaged in a personalized communication from their sales associate about what new arrivals will complement their wardrobe. And this includes special services for example private exclusive appointments during the festive period to help meet their gifting needs. And the benefits of this personalized approach are clear. Our top customers who are contacted through the CVM program are 50% more likely to return and purchase from us again.
They also spend 50% more when they shop than similar customers who weren't contacted directly in the same period. Last year, we grew the value of our top customers by over a quarter with customer value management driving a third of this growth. The 3rd area in which we use analytics is to help our teams improve our digital platforms in terms of design, content and site performance. Let me give you 2 brief examples. In the Q3, our merchandising and digital teams identified that sales of our new banner bag were performing less well online than in store.
But why? When we got together to look at the data, we found that very few visitors looking at bags actually clicked through to the banner product page. Basically, the visual imagery wasn't working to drive a click. So within a morning, our digital merchandising and creative media teams created new images for the banner bag in our in house studios downstairs and loaded them onto the website. And as a result, both product views and sales increased by over 100% to the extent that the banner online was outperforming offline.
Secondly, we have a globally consistent website which is live in 44 countries and 11 languages. By analyzing customer journeys for different nationalities, we found that while U. S. Consumers use the traditional left hand navigation menu, Japanese consumers prefer to browse in a more visual way. As a result of these insights, our digital team changed our global mobile site to add new types of visual navigation links.
This led to a lift in conversion of over 10%. The 4th area where analytics creates value is within marketing. We've recently conducted a global piece of work using econometric regression models to provide quantitative answers to key questions which will help in allocating our marketing spend. This analytical approach is common practice in many FMCG and media companies and we are bringing these best practices to luxury. So how does this help us?
As an example, one of our econometric models focused specifically on the variables that affected tourist spend in our U. K. Stores. From this, we were able to determine the relative influence of local marketing in a customer's home market versus the influence of marketing where they ultimately shop. Our marketing team has used this information to allocate marketing spend and to optimize the regional marketing messages consumers receive pre travel.
Given that the traveling luxury consumer accounts for around half of our sales in EMEA, you can understand the benefit of these insights. Another example is improving the targeting and reach of our marketing spend, getting the right message to the right audience through the right channels, thereby generating a better return on investment. For Festive 2014, we ran 2 separate campaigns on one of our social media platforms, one to engage our active customers and a different one to reengage our lapsed heritage customers with brand content specifically tailored for each group. The initiative delivered a double digit engagement rate, a multiple of the industry benchmark. So in summary, we started using data extensively to better serve our customers and to create value today and this data is changing the way we make decisions and operate across the business.
Harnessing this data will be a core underpinning of the future of retail. Indeed, McKinsey has said that companies that succeed aren't the ones who have the most data, but the ones who use it best. I'd like to leave you with a thought that we're on a journey to build customer analytics into the fabric of our business. Over the next few years, our priorities are to continue to embed customer analytics throughout the organization from retail to digital, marketing to sourcing and merchandising to planning, to enhance and personalize our customers' experience whenever, wherever and however they choose to shop, and to extend and deepen our customer value management program to serve more of our customers and to drive retention. Beyond this, as a forward thinking digital business, we want to make sure that we are at the cutting edge of analytics in a rapidly evolving luxury retail environment.
Thank you. And now I will hand you back to Christopher.
Okay. So I hope we've given you a little insight into some of the things that we've been doing and some of the ways that we're approaching the future. Thanks to Steve and thanks to Carol. And we are happy to take questions now.
It's John Guy from MainFirst. I've got 4 brief questions please. First of all, Carol, just to start on the OpEx. As a percentage of sales on the group. That grew by 20 basis points, but obviously there seems to be underlying some improvement.
As you look at your space growth program for FY 2016 within your pay as you go system, what can we expect to see underlying pre FX in terms of that the movement within the OpEx? Now the second question around cash. You talked around 5 times operating leases and looking at effectively a net debt position. But even on 8 times capital capitalized leases, you've got headroom in excess of CHF 2,500,000,000. So CHF 500,000,000 CHF 500,000,000 share buyback Potentially, is that on the cards?
What is your thoughts around returning more cash to shareholders? Christopher, one for you in terms of e commerce relationships. You didn't mention Alibaba. Just wondering what your current thoughts are within the context of Kering's lawsuits and what your relationship is there? And one for John on skincare.
Can we have an update in terms of a partner on the skincare side? Thanks very much.
Okay.
Can you hear me?
So in terms of OpEx in the year that we've just finished, we did say that we did see a benefit from leverage and tight cost control, but that was more than offset by the FX impact in the year. As we look forward to next year, we have guided this morning to a £10,000,000 FX benefit year on year And we're saying that reported margin incorporating that benefit we see as being broadly flat year on year reflecting that benefit and ongoing tight cost control which will be broadly offset by our continued investment in the investments we continue to make in flagship stores in digital in customer and also the adverse geographic mix of Hong Kong. So continuing to be very focused on driving income revenue and profit in pounds 1,000,000 while driving that margin expansion over time. But as we sit today, we expect reported margins to be broadly flat year on year. And then turning to your point on cash, as I said, we do look at our balance sheet every single board meeting.
We keep that under close review, but taking into account that adjusted net debt position, our future investment plans, potential opportunities to think about what we might want to do with our China minority partner in the future and the investment plans we've got ahead. We are delighted today to have moved our dividend payout ratio up from 42% to 46% as we committed to do as we move towards 50%. But as always we'll keep it under constant review, but no change to announce today.
And then John just I'll just frame both the Alibaba and the skincare questions that you asked. First of all Alibaba and Tmall, we have a very strong relationship with Tmall. It is a small business. It's something we obviously can't comment on the way that Kering are dealing with Alibaba. They have their own way of approaching those things.
Our approach has been to clean up the market on Tmall and make sure that we have consistency across all of our platforms. So on berbry.com, if you go into TMIL today and you see Burberry, it's very, very consistent. And you'll also see the gray market has been significantly reduced to practically 0 and that was a big part of our initiative. John will embellish in a second perhaps. And then just on skincare again just to frame that, we've always said that fragrance will be the bulk of our business within beauty.
We are delighted with the launch of My Burberry. We have got something very exciting coming up with makeup in the summer of this year. We haven't announced it yet. But fragrance will always be the bulk of it. But we believe in the opportunities in makeup.
Skin care, we did say that there is some that potentially we'd be having something by the end of 2015. We have no plans at the moment. We're exploring partners as you would expect. We're in no rush. When we find the right partner, we will work with them.
But again, just to reiterate, fragrance is really the key to our beauty division. John, do you want to?
Thanks, Christopher. I'll just add John that on Alibaba we have the most tremendously close working relationship with them. And since we went live a year ago, we've extended our product range with them and feel we continuously get great success with them in taking down counterfeit and parallel traders off the platform. I mean we meet with them frequently. They're incredibly responsive.
If we find that there are unauthorized traders up there or products up there they take them down really quickly. I mean only last month 23,000 different items removed because they do keep popping up. So we feel that by engaging actively with them in a commercial engagement which is about giving us better reach on revenue, we also get the benefit of a good relationship in terms of cleanup. And on Beauty, I mean as Christopher said, we've been incredibly pleased by how the year has gone. My Burberry has been a super success.
We've met the revenue guidance that we said earlier 25% up as Carol mentioned. We feel we've had a very successful period. The current year is about proving ourselves in makeup with lots of very exciting plans to announce in due course digitally too of course. And skincare we're still working with potential partners and we'll come back when we're ready to announce something.
Thank you. Hello. Thank you. Bassil from Berenberg. I have three questions, please.
The first one is on Japan. You've pushed forward a bit your target in terms of store openings. And I was wondering to what extent are you being cautious with that guidance? Because I feel that Japan, if you go to Ginza, for example, Ginza is what it is. It's very mature and it can take 1 to maybe 5 years to find the right space.
So how cautious are you in that new guidance? The second one is a bit on Hong KongJapan, which is what we are seeing right now is some of the tourist flows going from Hong Kong, but more Chinese customers going to Korea where you're in a strong position, but into Japan as well where it seems like you're still in expansion phases. So to what extent do you think you might be missing on an opportunity here because of these travel flows? And the last one is maybe on Hong Kong and your guidance on costs. To what extent are we factoring potential leases renegotiations?
Because we've seen some renegotiations for some of the watch players in that market. So if you can give us a bit of details here. Thank you.
So first of all just on Japan, It is absolutely a timing issue that we talked about a couple of months ago. We are very, very confident. And though it's important to reiterate it's a very small base today, the performance in Japan has been outstanding. To your point, we are being very consistent with the way that we are approaching the search for the right real estate. We've just opened Omotesando.
We've just opened Osaka. We've got a new opening towards the end of this year in Tokyo. Ginza, we continue to look for the right space. The reason that we talked about timings is again going back to the rigidity of the way that we are positioning ourselves in Japan. We want consistency.
We want to have the right adjacencies. We want to have the right peer group. We will sacrifice larger spaces to have the right spaces and that's really been the reason behind some of the delay with timings. I was there with many members of the senior leadership team just 3 weeks ago. The team in Japan that Pascal has built is a stellar team.
They are on fire. We feel very confident about the approach that they are taking. It's a very strategic, very thoughtful, very long term approach for Japan. We see our peers having a very strong large business in Japan And we know that we have got huge, huge opportunity there. And Pascal, do you want to talk about some of the Hong Kong things?
And maybe you want to embellish on Japan? We were talking about tourists in Hong Kong and also costs in Hong Kong.
Yes. Thank you very much, Mr. Just to add on what Christopher said on Japan. Let's keep in mind this is the 2nd largest luxury market in the world. We have long term views there.
Last May, when we talked to all of you, we said that real estate was the key. And we said that we always would go for the best quality. This is what we are doing. We are very, very pleased with our results. The business is comping more than 30%.
And we have an uncompromising attitude vis a vis real estate, be it freestanding stores, we have now 5 of them. And with department stores, we have certain concession. So far as Ginza is concerned, let's not forget that we have already invested in key flagship cities of Japan with Omotesando and Osaka. And over the fall this year, we will open Shinjuku. So we can take the time to look at Ginza, which is indeed very, very critical and very strategic and we'll need to find the right space.
Regarding Hong Kong, it is a sector wide issue. We focus at what we can control and we look at 3 things. 1 is the transaction aspect of the business, looking at the conversion, AUR average transaction value and also very importantly, the customer experience. 2, we look at the local customer as the mainland traffic from mainland China is decreasing. So the local customer becomes very, very important for us and we shift our marketing spend into more targeted action.
And the third thing that we do is indeed cost control. We do look at the organization, staffing and of course structural cost and particularly related cost. So we will update you as appropriate on this one.
Thank you.
So we sharped my. Thank you very much indeed for this opportunity. Mario Tele of San Jose Bernstein, if I may. The first one, a clarification on your pricing strategy. Your recent pricing change across geographies, if you can illustrate that, possible increases in Europe, decreases in Asia.
And which impact do you think they will have in margins? The second is about what is currently the differential business store business store rollout. You guided for a low single digit growth. You focus on the re generalization of your current store network. When you will complete the transition in China with less closure, you will have a state of the art retail network.
And if we look on a longer term in 3 to 5 years, which is the space growth that you have got in your plans? Thank you very much.
So your first question on pricing, I mean, I'll hand over to Donald, who's done all the work in the team there. But just to say, as I said earlier, we have a long term strategy and there has been no change to that strategy. Clearly, FX rates have significantly impacted. And just as we always do season to season, we've moved prices. And maybe Donald can give us a bit more color.
In terms of how that affects margin, just to say today, there's been no change to our full year outlook and the margin guidance we have given, which has been impacted by FX today, incorporates those pricing changes. So nothing to say in terms of how we expected to change margin compared to when we spoke to you in April. Donald, I don't know if you just want to give Mario a bit more color on how we look at pricing region by region?
Thanks, Carol. So as Carol said, we feel quite confident in the long term pricing strategy that we've laid out. And all of the actions that I think many of you have noted are consistent with this strategy. We have a couple of most recently. And those shifts were focused in select categories, primarily in rainwear and scarves.
And that we did address across many currencies, but most specifically within Hong Kong, China and Europe.
Thank you, Donald. In terms of store rollout plans in China, Pascal, I don't know if you want to give Mario a little bit of color in terms of where we are on that journey.
Thank you, Karl. So China, it's the network evolution is very, very consistent with what we have been doing since we acquired this market almost 5 years ago. We always said that we would elevate the brand image. So we closed the year with 68 stores with net closure of 10. So we closed 14 stores and opened 4 new ones.
We had a space increase last year of about 12%. This is very important for us to continue this strategy because globally the Chinese customer is very important for us. Globally, we have enjoyed growth last year, however, with a slowdown in the second half. In Mainland China, we still continue to see growth on a comp basis in this market. In Hong Kong, unsurprisingly, we see a slowdown.
And in the rest of Asia and Europe and Middle East and America, we see strong double digit growth with the Chinese customer. So this strategy is unchanged. We continue to elevate and optimize the store network.
And then your question in terms of differential margin, I think we've talked before, we're not going to give you specific numbers, but I think no different than many of our peers. It tends to be Asia, followed by EMEA, followed by Americas, just structurally the way the business has tended to operate in terms of where we see margins.
Hello, sorry. Just three questions from me. The first is following your price cuts in China and Hong Kong, could you give us an idea if you've seen any volume impact there? The second question is in your presentation you did a very impressive talk about what you're doing with customer relationship management etcetera. Where would this put you now relative to your peers do you think?
Do you think you're now streets ahead or does this just bring you up to speed with them? And the third point is on your guidance, you're saying PBT is going to be more H2A than this year. Can you just clarify why that is and sort of what we should expect H1, H2? Thank you.
I mean just in terms of price cuts Annabel, I mean it's very early days. So as I said,
it's factored into that guidance today. I mean it's been a few
weeks and normally season business as usual business as usual both in Asia and indeed in EMEA. So nothing specific early days and no change to guidance on the back of those movements that we've made. I'll just take the H2 question and then I'll hand over to Christopher or Steve. In terms of H2, given what's happened in Hong Kong specifically, clearly last year we had strong growth in Hong Kong in H1 and then we saw it declining in H2. As we enter this year clearly that high margin market We've guided to the fact that we're still finding Hong Kong very challenging sector wide we believe, but that will impact on the weighting of profits H1, H2 principally driven by Hong Kong and the continued rollout of our flagship strategy with some of those big openings we talked about in Japan, in Korea, which will put a little bit of pressure on H1 versus H2 this year.
In terms of customer relationship management and where we are?
Yes. In terms of our customer value management program and more broadly our use of analytics throughout the business, I think we talked about how we're using it, the size of the database that we have, the infrastructure we're building around it. And I think what's powerful about it is the way that we're building all of this into the fabric of what we do today to day. So it's not just a program that we're running out of CVM program, but it's actually fundamentally different way of using data everywhere throughout the business.
Thank you. It's Louise Singlehurst from Morgan Stanley. Just a couple of questions for me please. Firstly for Carol. Can you help us understand the underlying OpEx move into full year 2016?
And I know you talk about the incremental IT investment. But can you give us a flavor of what was spent in full year 2015, whether that's a big increase for full year 2016 and whether that's a 2 or 3 year project or something that's done over the next 12 months? And then secondly, obviously, the inventory position, a huge pat on the back of the team given it was pretty much flat year on year given the growth. Can the team give us some idea in terms of the benefits that you're seeing for the Chinese business? Obviously, you're rolling that out to the U.
K. And U. S. I presume that's a question for Donald. And one cheeky question, which I'm sure I'm not going to get the answer for.
But in terms of how you're planning the business and the change in the Hong Kong environment, how are you thinking about managing the business for the like for like that you need to sustain that margin that we're now looking for the full year 2016 currency neutral? Thank you.
Okay. So first of all just in terms of OpEx that we have called out in statement today that we will continue to invest in flagship markets in digital and in technology. I'll hand over to John. Over the last few years, we've massively benefited from the SAP investment that we made what is now 8 years ago, which has underpinned a lot of our growth and particularly gross margin improvement over the last few years. And it's now time to upgrade that platform as we look forward in order to underpin future growth and productivity initiatives.
But it will be a few £1,000,000 a year prioritized very much in line with our pay as you go approach, making sure that we're delivering the returns off of that. I don't know if you want to add anything, John?
Quickly, Carol, I mean SAP 2007, here we are 8 years later, it's been brilliantly helpful to us in getting visibility about performance store by store standardization and so on, the things people do get from SAP. But like all software suppliers, they're evolving their slowly over
the course of the next 12 months
or so. We won't be getting slowly over the course of the next 12 months or so. We won't be getting new visibility benefits. We've got those already. We will be getting benefits in terms of process improvement and also we're obviously replacing something that's now 8 years old anyway including the hardware that it runs on.
And then Donald, do you want to do the China fulfillment?
Yes, absolutely. Thank you, Christopher. So Louise, thank you for the pat on the back. I think the global planning and allocation teams will appreciate that. And a credit to them absolutely.
To your question around single pool of inventory, as we spoke about in our last interims, we actually rolled that out in China most recently. We're very happy with the results that we've seen so far. And then over the course of the coming year, we have the plans to implement that both in America and in the U. K. So I think we're in a very good spot there.
The other benefits that we've seen are from our automated allocation system that we've placed in. And the benefits coming from that across our inventory management have been quite strong.
And then just in terms of Hong Kong, obviously, there's a specific issue in terms of the actions that we're taking in Hong Kong to mitigate that continuing decrease in footfall in our highest margin market. But beyond that, it comes back to the wider business wide productivity initiative that Christopher spoke to early, which is right across the business through driving productivity in our retail sales through the investment we're making in product, through the investment we're making in customer in merchandising some of the work that you heard Donald talk about earlier. And then of course looking to drive long term margin expansion as well in terms of partly controlling costs again balancing investment with cost. But the size of the decrease in Hong Kong it will impact the first half numbers as I alluded to earlier. But it's really focusing on what those productivity agenda right across the business which I think will drive both top line and indeed benefits to gross margin and OpEx over time as well.
Guillaume from Credit Suisse. I'm just trying to get a better understanding on your LFL development LFL development for fiscal 'sixteen. So three questions on that, please. Firstly, how are you thinking about increasing prices on trench coat to the same extent you did last year? If I remember correctly, you increased prices sometime about 20% on trenchcoats, which probably have been a material contributor to LFL.
So that is my first question. The second question is on mix contribution. I mean you've been flagging the Ponsha collections being a massive contributor to mix and hence LFL. So are you thinking it will repeat again this year? Or are you seeing new products bringing the same mix contribution?
And final question also related a bit to OpEx. I mean, what is exactly your LFL, I would say, breakeven point in terms of what is the LFL you need to achieve to avoid operating deleverage in a, let's say, currency neutral environment? Thank you very much.
I mean just in terms of pricing, as I said, our pricing strategy is season to season. We do we've always adjusted prices. And so you did see something last year on heritage trends. You've seen something regionally this year in response to FX. So nothing to announce today specifically.
It is just part of business as usual. And as we go into each season, we'll look at that product in market, decide what the appropriate pricing adjustments if any we need to make are and then move on to the next season. So nothing specific to call out today and what we might be doing differently there than what we have done in the past. In terms of the mix and ponchos, I mean I don't know Christopher do you want to give any color? Yes.
I mean, we ponchos was really a new category. So we know that we have got a lot of further opportunity in ponchos. But it's part of a broader range of what we call softs, so basically cashmere scarves. And that will be a big focus for this next year. But we also don't underestimate the heritage and the trench coats and what we started last year.
That is becoming the foundation of everything that we do. And we know that we've got a lot of further potential there.
And then your last question about what's the breakeven point in terms of like for like. Clearly, I'm not going it depends market by market and that's not what that's not how we necessarily think. It's about dynamically managing the business as we go, making sure that we're taking the opportunities right across the region. So looking to offset some of the challenges we've got in Asia by outperformance in other regions, whilst we tightly control discretionary spend as we always have done, but also mindful that we need to continue to invest in those initiatives, which we believe drive that long term top line revenue and profit growth in £1,000,000 So it's that dynamic management that we've been doing for the last few years that needs to continue as we navigate our way through this year.
Because I think we've got time for one more.
Roger Fedsimoerg from RBC. Mr. Beile, do you think it would be desirable to invest to have more products made in England given your success? I understand it's not for everything given that they're skilled in Italy, but I was just curious to hear your thoughts. And Carol, one question about gross margins.
Could you help us to think about the outlook for fiscal 2016 because you were lapping a big inventory write off in the first half in fragrances. And I was a bit surprised. Obviously, Hong Kong is a drag. But if you could help us on the gross margin outlook would be great. Thank you.
So I'll take the first one about made in England, made in the U. K. It's fundamentally important to who we are and our identity. We have over 700 people in Yorkshire making our trench coats. And as we mentioned in the speech, we work with the farmers, the cotton farmers to bring that to our factory in Keithley where we weave that into the Gabardine, the famous Gabardine.
It then gets driven to our factory in just down the road 20 miles away to be made lovingly by hand by the seamstress there. It is fundamental to the heritage and to the history that we continue with that process and with that craft. And then also the iconic cashmere scarf is woven and made in Scotland, which is where we've also started producing the ponchos. So it's very, very much a part of our identity. It's part of our DNA and it's something that we will continue to expand on.
And then just to your gross margin point, clearly, H1 of last year was impacted by that one off beauty write off. You'll see from the year end number we're delighted with our inventory position. We have both our fashion and beauty inventory very much under control. So we certainly will hope to be able to have some positive leverage from not having the beauty write off. We need to wait and see where Hong Kong materializes in terms of the mix impact that that will have on gross margin.
But some of the initiatives Christopher spoke to earlier in terms of option assortment higher sell full price sell through, I'm hoping that we will also see benefits in gross margin coming from that. And the reason we're guiding to flat retail wholesale margin at underlying rates is because depending on what happens in Hong Kong, there is a large fixed cost base there and that will put pressure on OpEx as we continue to invest and balance that as we go. But yes, absolutely would expect that we would be able to offset that impact we had on gross margin from Beauty last year.
So guys, thank you so much for taking the time to come over to see us and to listen to all the things that we're doing. A couple of things just to finish. I mentioned in my speech, we'll be opening at the end of the week a new store called Thomas' which is just behind our Regent Street store on Vigo Street. It is a gifting store. So I'm sure you're all looking for gifts.
So please do go there. Check it out. We're looking forward to seeing you in there. And it's also a cafe. It is a prototype store, but we would love you all to go there particularly if you're there to shop.
Secondly, we also invited you many of you to Los Angeles to celebrate the opening of Rodeo Drive, our new store there. Few of you were able to join us, so we wanted to just share with you some of the highlights that we had there, so that next time you take us up on the offer to come over. So thanks again for joining us and enjoy L.