Good day, and welcome to the First Quarter Trading Update Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Carol Fairweather. Please go ahead.
Good morning, and welcome to Burberry's Q1 trading update conference call. With me this morning is Faye Dodds, our Investor Relations Director. I will make a few brief comments on retail trading in the period, then we will be happy to take your questions. Before I start, please note that there are two changes to our disclosure. Firstly, as we told you in April, in the first and third quarter updates in July January each year, we will now only be reporting retail revenue.
We will continue to give revenue by channel, and product in the first and second half trading updates in October April when the information is more meaningful. 2nd, we have recently integrated the management of Europe and Rest of World. And from now on, we'll therefore report on a combined Europe, Middle East, India and Africa or EMEA as we call it. Turning to the Q1. Retail revenue increased by 21% at reported FX or 18% at constant exchange rates.
We were pleased with this performance in what remains an uneven trading environment. Comparable store sales growth was 13%, which was broadly in line with our internal expectations. Part of this performance was season specific. With spring summer launching in November, we knew we were seeing a strong consumer response to fashion as we pulled our budget together. We also benefited from record reach and engagement from the advertising campaign and from the 2 strong runway shows, the women's show in February and men's in June, which we brought home to London.
In both shows, we continued our drive for innovation around personalization and the use of social media platforms. And part of this performance was driven by our well documented key initiatives from enhanced monthly floor sets we drive cross functional collaboration to our focus on conversion both offline and online as we begin to benefit from our investment in footfall counters to obtain the data, the customer insight team to provide the analysis and our regions to drive the improvements. Product strategies were consistent with previous periods with core outerwear and large leather goods together accounting for over half the growth in mainline, a strong performance for men's accessories up over 25% in the quarter and representing nearly 20% of mainline accessory sales, and an increase in the penetration of Portsmouth London, particularly in men's helped by outerwear and tailoring. By region, there was double digit comp growth in Asia Pacific and Americas and high single digit growth in the newly defined EMEA. We are pleased with our performance in China with double digit comps in the quarter and where we also continued to evolve the store portfolio with 4 stores closed and 4 opened, including 2 openings in the flagship market of Shanghai.
Online performed strongly as the regions took ownership of digital commerce in their markets to enable a more seamless offer to consumers who are increasingly channel agnostic. Sales through Ipads in store are increasing and we are trialing collect in store in selected flagship markets. Turning now to guidance. There is no change to report from what we said at the time of the preliminary announcement in May. With new space expecting to contribute low to mid single digit percentage growth to retail revenue in the year, with wholesale excluding beauty expected to be down around 10% at constant currency in the first half.
No change to the beauty revenue and profit guidance for 20 thirteen-fourteen being £140,000,000 worth of revenue and £25,000,000 worth of profit, respectively. And for licensing, excluding fragrance and beauty, slightly positive growth at constant exchange rates. With retail comp growth in the 4th quarter in the first quarter broadly in line with our expectations, we are also still expecting first half profit to be below the level of the prior year. As we've previously said, this reflects the weighting of the business to the second half, the fact that first half wholesale is expected to be down around 10%, the dilutive impact of Beauty as we move from license to direct operation and the £15,000,000 benefit in the first half last year from a lower performance related pay charge. For the full year, we continue to plan for modest increase in the retail wholesale operating margin from the 17.1% normalized margin we achieved in FY 'thirteen.
We will continue to use operational leverage from revenue growth to modestly improve the margin, while investing for the future growth and cleaning up legacy issues. So in summary, as Angela said in her quote this morning, we are pleased with our Q1 retail performance, which was in line with our expectations, reflecting a standout springsummer season. Looking forward, the macro outlook remains uncertain, but our strategies and investment plans remain unchanged as we look to deliver profitable high growth opportunities by channel, region and product. So with that, we would now be pleased to take your questions.
Thank you.
We'll now take our first question from Thomas Chauvet of Citigroup. Please go ahead.
Good morning.
Good morning, Thomas.
Hello. A few questions. The first one, you're talking about a changing consumer behavior with soft footfall offline, but strong growth online. Can you perhaps elaborate on that? And what was the growth in £1,000,000 e commerce revenue this quarter?
Secondly, you said that the 13% like for like was in line with your expectation. So it feels quite brand and collection specific perhaps. How do you think this compares to the market overall, in particular in China? What were your LFL? How do you see the market the overall market improving?
And finally, just a couple of housekeeping questions. The first one, in the newly reported Middle East, Africa, Europe region, how much of European sales is that? Is that about 15%? And what was the split between that sub region and Western European LFL? And comment perhaps on tourist flows?
And what was the average retail space growth in the period? Can you comment on that? Thank you.
Okay. So first, your question about changing consumer behavior. I mean, as we say, we like to focus on controlling what we can control. So in terms of as consumers increasingly are becoming, we're calling channel agnostic about whether they're shopping online or offline, we just want to make sure that we can respond in the right way. So we've given the responsibility for digital execution back to the regions.
And we're making sure that in terms of the consumer comes into our store or shops online at home, the brand experience is consistent however they want to shop. So we're calling out that whilst falls continue to decline, albeit at slower rates in our stores, traffic online is up and conversion is up in both in stores and online. We don't actually split out for you the digital number. We're very focused. I mean, internally now, we're just thinking of retail as one channel, whether it's online or offline because of this agnostic behavior about where consumers like to shop.
So that's in terms of digital and consumer behavior. The calling out it was both. It was a calling out it was both. It was a very strong performance from our springsummer campaign, both around product, around marketing and around the fact that we 2 great shows. But important also that it was also a continuing of our own actions around improving and driving our retail disciplines, increasing conversion in store, as I said, empowering the regions to drive the digital business and continuing to benefit from the early data we're getting on customer insight.
And then I think you asked also about China. China, we are calling out still a double digit comp in China. So continue to be pleased with our performance in China. We're again very focused on our own actions there, be it the evolution of the store portfolio, really making sure we can service the Chinese consumer and again what we're doing in sort of digital innovation in that space. And then in terms of EMEA, I'll hand over to Faye who's just Yes, second, Paula.
And another time, if you look at last year, the full year, I mean, Europe was about 30% of our sales and Rest of World was about 6% of our sales. And what we've done is pushed those two businesses together. That's all now being managed by one central team. And I don't think there's anything particular to call out in terms of a change in tourist patterns in any of those markets?
So I'd say, in Q4, I remember Europe was like for like were slightly better than Q3, so probably very low single digit. What was Western Europe, so in the former disclosure format in Q1?
Yes. No, I mean, it's along with all of our other regions. It saw some good growth in the Q1. You couldn't get that region to high single digit growth if you weren't seeing significant growth in Europe, because this was the rest of world part of it is really too small to move the needle.
Okay.
And I think your last question was about what space growth we added in the Q1. As you know, we're no longer disclosing that. What we have said is that the contribution from NewSpace in the Q1 is about 5%. And for the full year, we expect it to be low to mid single digit. Business base growth is slightly first half weighted.
Okay. Thank you.
We will now take our next question from John Guy of Berenberg. Please go ahead.
Yes. Good morning, Carol and Faye. Just a first question on China. I know that last year you made the or you split out the performance between the more newer sort of stores in China relative to the sort of ex franchise stores. And I'm just wondering out of the I think last year out of the 50 stores that you acquired back in September stores that you acquired back in September 2010, you had 48 still in the X franchise model.
Could you just give us an indication as to how many stores you have running in the ex franchise model today? And what the difference in performance has been between the newer stores versus those ex franchise stores, please? That's my first question.
Yes. So in terms of we've closed 18 of those 50 stores we acquired back in 2010, John. So in terms of how they're performing, the new stores continue to outperform the stores we bought back as part of bringing back that franchise.
Okay.
Thanks. With regards to the your comments around no change with regards to guidance and when you're looking at strong drivers of growth in outerwear and also large leather goods and also seeing a higher sales penetration coming from Paulson. They're both positive in terms of margin and also in terms of sales densities uplift. So does that therefore imply that we're looking at a pretty hefty uplift in terms of the OpEx as a percentage of sales? Appreciate that there's some bonus accrual that needs to come back in over the course of the year, certainly first half weighted.
But does this mean that we're going to see further upside or I suppose downside if you're looking at that number going up as you continue to invest?
Yes. So I mean, in terms of the increasing sales presentation of London and Pawsome and the continued growth in outerwear and large leather, No significant impact on gross margin to call out there, John. So nothing to note in terms of anything significant in terms of the way we look at that internally. And therefore, we're continuing to focus on making sure that we continue to modestly move up that retail wholesale margin in the full year.
Okay. So when we're looking at the average selling price or looking at sort of volume value growth within the LFL, could you talk about the volume value splits, please, within
the 17%? The average unit retail has gone up. That is largely driven by the elevation, both in terms of More London and Pralswain, but also the elevation in terms of the product itself. So making sure we're still giving that right sort of customer value proposition to our customers. But as we continue to elevate the product, be it through additional trims and finishes, then that has also moved the AUR up.
Remember, as we sell more pros and or as we sell more fashion product, it isn't higher gross margin, it's lower gross margin because we're doing lower runs, there's more engineering going into the product.
And it's a higher cash margin there?
It's a more pound margin, yes.
Okay. And then I guess just with regard to Korea, I know that you talked about Korea stabilizing and improving. Could you talk about the sales growth in Korea? And what does Korea now represent as a percentage of sales? I mean, you've had pretty much 18 to 24 months of tough trading in that market.
So maybe just talk about a little bit about Korea, please.
Okay. So yes, I mean, we are seeing a slight uptick in Korea and have had favorable like for like sales in this quarter, which we're pleased with. We got a new management team out there and Korea is beginning to turn around. So we're pleased with that performance. In terms of absolute percentage, I mean, it's significantly less than 10% of our group retail wholesale revenue.
Okay. So about 6% to 7% then?
Something like that. Yes, I haven't got my calculator.
No, no. No, that's okay, that's a first. Thanks very much indeed.
Thanks, John. We will now take our next question from Antoine Belge of HSBC. Please go ahead.
Yes. Good morning, Antoine Belge, HSBC. Is it possible for you to comment on the other Asian markets that we haven't touched yet, so maybe in particular Hong Kong and Taiwan? And then my second question relates to Japan. I mean a lot of your peers have mentioned that Japan was the positive surprise for them.
And in terms of what you are managing directly in Japan, are you seeing also positive trend there? And finally, can you comment maybe on the PBT consensus range? And so maybe one question I have regarding your guidelines is how do you factor in the weaker pound in that guidance given that it should be a benefit for Burberry?
Yes. So in terms of the other Asian markets, I mean in Hong Kong, again, we were delighted we had strong double digit growth in Hong Kong. Taiwan Taiwan, again, it's a very small market for us, but we saw good double digit growth there. Obviously, helped by the opening of Taipei, which was about a year ago now. Just anniversary, yes.
And then in terms of Japan, our owned retail business there is still very tiny, but again making nice progress. So that's in terms of color around Asia. I think you then asked about the impact of the weaker pounds. Clearly, there will be I mean, exchange rates, as you know, have been moving quite a lot over the last few weeks. Looking at the numbers today, it would add a few pounds, 1,000,000 to PBT.
But as we know, the dollar is up and down quite a lot at the moment. So probably still a little earlier in the year to be absolutely full of factoring that into our forecast. And I think you also asked about how we saw the range. I mean, for this year, we saw adjusted PBT going to this morning was about €464,000,000 The range was about €437,000,000 to €495,000,000 I think it's too early to say what's going to happen today. But I would expect perhaps people to look at the way that they're building models without significantly changing those numbers.
Okay. And maybe just a follow-up regarding your markdown policy for spring summer, was it different from previous seasons?
Yes. No, broadly, I mean, in terms of length of sale and depth of markdown, no significant change. We did synchronize online this year as we gave it back to the market. So we synchronized the online markdown with the store markdown on a market by country by country basis.
And given that you're I mean, I think you mentioned that's the reason why one of the reasons why Roussel would be negative is the cautious attitude from retailers. What was their own attitude towards markdown? I mean, do you feel that they have a lot of inventories? How do they feel about the next collections?
No, I mean, we'll come out in October and talk about guidance for the second half because people are obviously buying. We'll come back to you and confirm that then. But in terms of markdown, we've not heard anything significant being called out, particularly from the U. S. In terms of department stores.
Thank you.
Thank you.
We will now take our next question from Luca Solca of Exane BNP Paribas. Please go ahead.
Yes, good morning. I would like to ask a question about product categories and if you see any or if you give us a bit more color, for example, on leather and if you see any difference in product category sales mix across geographies that you would like to address? Also on Fragrances and Cosmetics, I was wondering how the development of your organization and setup is moving along. And if you could give us a little update on that. You're pointing to macro uncertainty, thirdly.
I would like to get your view on where you see the most important risks to the business in terms of regions or in terms of any other threat that you would anticipate from the macro?
Okay. I mean, in terms of product categories, I think we were pleased again, over half the mainline growth came from core outerwear and large leather. We called out again our men's performance in terms of a category we have been underpenetrated, and we saw nice growth again in this quarter, and particularly in men's accessories, accessories, which as we called out grew over 25% and now represents about 20% of accessories. Nothing specific, I don't think, to call out by geography other than in China, again, men's is a very important part of our business there and has helped drive some of the growth there, I would suggest. In terms of fragrance and cosmetics, following year, we gave the update at the prelims, but the organization is now in place.
And we're beginning to manufacture. We're beginning to ship. Still early days, but so far so good. And we are planning for our big first fragrance launch since we brought back the business ourselves in the autumn. And then in terms of macro uncertainty, I mean, nothing I don't think to call out by specific region.
We're mindful of the macro uncertainty, but remain very focused on controlling what we can control in terms of really driving conversion, having the right product in the stores, the right customer service, this right proposition between online and offline and just remaining very focused on what we can control. Yes. And I think even during the first half when we had such a strong springsummer collection, trading patterns were still uneven and they were uneven globally. So we just don't want everyone to think that we've been trading seamlessly and very smoothly. Yes.
And it was a small quarter.
Fair enough. Thank you very much.
We will now take our next question from Omar Saad of ISI Group. Please go ahead.
Hi, thanks. This is Vik Mohan in for Omar. Could you talk a little bit about the continuing strength in Foursome in London? Do you think this is the same Burberry customer trading up or a new customer entering the brand? Thank you.
I mean, we're very pleased that we the penetration continues to increase in Portsmouth London. Remember, I mean, people actually shop across the brand. So they will shop for Folsom. They may buy a Folsom jacket and a Brit pair of jeans. So I don't think our data at the moment allows us specific visibility about that.
But I think it's around making sure that the consumer is actually sort of selecting to shop up the pyramid a little bit. And we're very happy with the response to both Tawtham and London.
Thanks. And then could you also talk a bit about the trends in the local European customers? Has there been any change in trend over the last few months, especially in Southern Europe?
I think Southern Europe does remain weak. But I don't think we've seen anything specific that we'd be calling out today. No. I mean, don't forget that London is about 40% of our European sales. And it's quite difficult for us to read London at the moment because, again, less than half of our space is in comp.
Thanks. We will now take our next question from Rogerio Fujimori of Credit Suisse.
I just wonder if you could give us or talk a little bit more about your like for like performance in Americas. Particularly you reported double digit comps. But I was just wondering how the contribution from the U. S. And the other markets in the region?
Thank you.
Yes. I mean, we did report double digit comps across the Americas. I think one of the things, again, we're talking to there is about having given back the responsibility for executing digital to the regions. I think they have done a great job in terms of driving revenues and conversion both online and offline. And I think that has been a real success in terms of the amount of business done on iPad sales in store, for example, has been very successful in this quarter.
In terms of elsewhere in the region, I mean, nothing specific, I don't think, to call out. I mean, the U. S. Is still 90% of our Americas region. We're excited about what's going on in Canada.
We've opened another store in Mexico. And Brazil continues to be a big growth opportunity for us either within the country where we've now got 7 stores or as we start to serve that Brazilian consumer in New York, in Miami and in Paris as they travel.
Thanks very much.
We will now take our next question from Louise Singlehurst of Morgan Stanley. Please go ahead.
Hi. Good morning, Carol. Good morning, Faye. Hi, Louise. Couple of questions for me, just a follow-up.
In terms of the consumer insights and all the initiatives that's been going on there, can you just remind us is that now rolled out globally for you? So obviously on all the iPad technology, are you able to gather all the information pretty regularly on a global basis? And then just a follow-up on inventory. I know there's no specific comment today, but given the fact there seems to be a lack of product in the sales this year, I presume inventory is pretty tight. Thank you.
In terms of consumer insights, as we say, it's still relatively early days. We're pleased with the data we're now collecting, but we need to have the comparable data to really drive that insight. I mean, we do have footfall counters now in most of our stores, but we haven't anniversaried that yet. If we're talking about iPads installed, we've got iPads installed in terms of being able to service the customer in terms of the Clear and Telling app that we talked about at the prelims, that isn't fully rolled out yet, but clearly will be an opportunity for us as we continue to do so. In terms of inventory, we talked in May about our inventory never having been in better shape.
And I think that focus absolutely continues.
We will now take our next question from Julian Easthope of Easthoppe of Barclays. Please go ahead.
Thanks very much. Good morning everyone.
Just a couple of questions for me. Just following up on your comments about uneven. Given that like for likes are up 13%, I just wonder how uneven it could possibly have been? And in terms of that as to the exit rate as you come into Q2? And the second question relates to last year's Q2 effect.
When you look back at the seasonality last year, Q2 was clearly by far the most negative quarter. When you look back at that, do you think that was an aberration? Or do you think that was just a realignment of sort of more normal retail patterns? So when we are kind of looking at our Q2 estimates, should we expect an acceleration from Q1 in terms of the numbers? Thanks.
I mean, in terms of uneven through Q1, we do continue to see different trends week to week by market. Overall, 13% was a nice comp to post for the quarter. But it is still there are different week to week, it's still a little bit uncertain out there. In terms of the exit rate and looking into Q2, clearly, you wouldn't expect me to comment on current trading or guide in terms of commerce. But we it's just about remaining very focused and we keep saying it on what we can control, notwithstanding what's happening in the macro, both again to stress both online and offline.
In terms of last year, Faye Yes. And I think when we look back on the Q2, what we called out is 2 specific markets that really slowed. 1 was the U. K. We think that was an Olympics effect.
And then the other market that slowed was China, which I think we call that as being driven by a poor consumer sentiment in the run up to the change of political leadership there. But as you know, China then subsequently recovered for us in Q3, Q4 and that trend continued into the Q1. The U. K, as I said, we're still finding quite difficult to read because we haven't got those big stores, the Regent Street, the Knightsbridge bridge back into comp yet. Brilliant.
Thanks so much.
Thank you. We will now take a follow-up question from John Guy of Berenberg.
A follow-up question from me just with regards to going back to last year in the Q1 when you had roughly just under or around a 2% impact on the deemphasis of opening price points and the rationalization of Nova, also cutting back on some legacy stores. I appreciate that's more from the wholesale perspective. But can we can you talk about where you are in terms of product line deemphasis? Are we effectively now done? Is there still more work to go?
And with regards to the wholesale side, where are we with regards to the rationalization program there? Thanks.
Yes. I mean, I think in terms of product rationalization, I think there's nothing that I'm aware of at the moment that we need call out specifically. In terms of legacy, in terms of the Europe, particularly in terms of Europe, I mean, I think in the U. S, we're broadly done in terms of the work we've done in terms of taking ourselves out of the coat departments and whatever. But in terms of Europe, I think two things there really.
1, some of the some of our customers are self selecting out as we're becoming more rigorous around credit and they're finding trading more difficult. And we probably expect a few pounds, 1,000,000 a year to still come out of our Europe wholesale business as we continue to elevate the brand, but looking to replace that by stronger growth at the top end in the wholesale model in Europe.
Okay, great. And then just going back to Paulson. It seemed to me when we were sort of traveling around Asia that the sales penetration rates in some of the new stores in Shanghai and also I think the Akobi store in Japan, porcelain as a percentage of sales is anywhere between 20% 30%. And that compares to, I think, last year's range of 5% to 10%. So where do you see porcelain as a percentage of sales in the newer stores in Asia?
Is it around those levels? And where do you think Porcelain can go?
Yes. I mean, I think in terms of in Asia, I mean, Paulson globally is still around 5%, which I think we're happy with the shape of that. I mean, it is absolutely the DNA of the brand and what causes a lot of the excitement around the brand, calling out specific stores in Asia. We will in some of our flagship stores have more penetration or in particular markets where we merchandise according to consumer preference. But I don't see Crawlsome nudging up much around that sort of much beyond that 5% globally going forward.
Even the corporate stores don't have Pralsome.
Yeah. And I'm just thinking of the very high rates that you're selling to generate in some of these key markets. It's only going to be just above 5% on a global base?
Yes. I mean, we'll continue to see how it continues to evolve. But our plans don't suggest anything different at the moment.
Okay, great. Thanks very much indeed.
We will now take our next question from Allegra Perry of Cantor Fitzgerald. Please go ahead.
Yes. Good morning, Carol and Faye. I have two questions for me please. Firstly, you mentioned enhanced monthly floor sets. I was wondering if you could give us a little bit more detail around what's changed?
Have there been any changes to supply chain, assortment, marketing or merchandising that have driven that? And then secondly, I was wondering if you could quantify or give us a broad sense for how much the Chinese account for sales outside of China? Thank you. Okay.
So I mean in terms of enhanced monthly closets, we've been talking for some time about becoming much more of a dynamic retailer. And it's about having newness in our stores online every month. And I think we've just perfected that now. I think we've been moving towards that for the last few years. And I think it has now come together so that cross regionally, cross functionally, month after month now, we are getting the new fashion element of the monthly floor set into our stores.
The windows are changing. The landing page on the world site store is changing. And I think we've just become a lot better at actually executing that on a consistent basis. In terms of the Chinese, I mean, we talked in the end of March, which is really the last time we're looking at the data like that, we're talking about something like 14% of looked at in terms of Greater China and elsewhere, probably nudged up to something about 20%, 25%? Yes.
I mean, I think if you look at the percentage of spend globally by Chinese consumers, we estimate it's about 30%. And as Carol said, that includes stuff in China, then the Chinese spending in Asia and then the Chinese spending as they get it go across to Europe and the Americas. But it's about 30%. Great.
Thank you very much.
We will now take our next question from Fraser Ramzan of Nomura. Please go
ahead. Hi, good morning Carol and Faye.
Good morning Fraser.
Just I actually may have missed it on the call earlier, but I just wanted to check-in terms of your growth in retail in Mainline. Could you sort of characterize the split between improvements in units per transaction and improvements in AUR, obviously, taking on board the better conversion you flagged?
Yes. I mean, I think it's been fairly consistent that the key driver of comp growth has been the increasing average selling price rather than pushing volume. That average selling price is coming from very modest like for like price increases with the majority coming from product elevation either more Boursome or more London or elevation within the product categories.
And did you have growth in units per transaction overall?
Yes.
Yes. Okay. And then just moving on to sort of e commerce growth that you've obviously highlighted. You've talked quite a lot about the improved use sale. There's been a sort of big improvement around capturing the sale digitally in store.
Yeah.
And I think it's probably coming from both Fraser in terms of we know that sometimes the consumer comes into the store, has a look and then goes home and buys it online. They may have looked online and come into the store. But I don't think we're pleased with the fact that the iPad installs are being used so appropriately, making sure that we never miss a sale. But I think online at home effectively or on a mobile device is still showing nice growth too. Okay.
Thank you very much.
We will now take our next question from Mario Ortelli of Bernstein. Please go ahead.
Good morning, Carol and hey. Two questions for me. The first one on price. You mentioned that you made very little price increases. If you can give us some color, especially in which geographies and in which product line you made these price increases?
And the second one is just a clarification. If I'm not wrong, in this quarter, you made 6 closures of stores of which 2 relocations. How many closures and relocation are you planning for this year? Thank you very much.
Okay. So in terms of price increases, I mean, nothing significant to call out there. Really, we're talking about very low single digit, and that's really just keeping pace with inflation and cost increases. Nothing specific either to call out by product or by region. We've talked before about our global pricing architecture and broadly we're staying within that.
So nothing new there. There were 6 closures in the quarter. And in terms of the full year savings We're still looking for about 15, which is what we said at the time of the prelims. And the closures we had in the Q1 were basically a couple in Hong Kong as we react to opening Pacific Place, further evolution of the Chinese store portfolio. And then we've relocated our Frankfurt store at last.
Thank you.
As there are no further questions at this I would like to hand the call back to you.
Okay. So thank you very much for your attention. As I said earlier, we are pleased with our start to the new financial year in what is a small retail quarter. And we look forward to speaking with you again on the 15th October for our first half update. Thank you.
That will conclude today's conference call. Thank you for your participation, ladies and