Burberry Group plc

Good morning and welcome to Burberry's first quarter conference call. Slides are available to accompany this presentation on the IR section of our website. In today's presentation, I'll spend the first few minutes running through our retail performance in the quarter, sharing the progress we've made against our strategy, and then close with guidance. With me this morning is Annabel Gleeson, our Head of Investor Relations, and we will be happy to take your questions at the end. Turning to slide one, this quarter Riccardo Design Products became a meaningful proportion of our offer, building from 10% to 15% of the assortment at Q4 to around 50% by the period end. The customer response to the new product has been very positive. We saw strong double-digit percentage growth across runway, summer, and autumn 19 collections compared to the equivalent collections in the prior year. Sales from the new product were ahead of the prior year in all regions, with Chinese and Japanese customers delivering the strongest trends. Consumers reacted positively to the new aesthetic and the new Burberry house coats. Men's and women's benefited from the outfitting initiative with strong growth in tops and bottoms. And in accessories, we continued to build out our product architecture an increased emphasis on solid leather bag collections. Whilst the new product is performing well, lines of previous collections continue to weigh on the overall performance of the business, resulting in comparable store sales growth of 4%. Turning to the second slide, by region, Asia Pacific led the growth, delivering a high single-digit improvement year on year. Mainland China grew mid-teens as customers responded positively to the new product line and the country benefited from some repatriation of spend towards mainland China. By nationality, Chinese spending globally was up high single digits and marked sequential improvement on the low single-digit trend in the prior year. In Japan, we continue to expand our retail footprint gaining concessions in Hankyu and Isetan. On a comp basis, Japanese sales were up mid-single digits, which including the benefit of new space, Japan grew mid-teens, as our new product resonated well with fashion-forward consumers. Elsewhere in Asia, Korea grew low single digits, whilst Hong Kong was lower year on year, impacted by the protests. EMEA grew low single digits, with a mixed performance across countries. The UK and Italy both delivered good growth, while France was softer year on year. And the Middle East remained challenging, impacted by the macro situation. And finally, the Americas was flat year on year. The US grew low single digits, but was offset by Canada, which was impacted by a later markdown period. Turning to slide three, this slide shows the major components of retail sales. And again, you can see the 4% growth in comparable store sales. Space was minus two in this quarter, and we still anticipate space being flat for the full year. During Q1, we continue to invest in our store network, opening nine stores, including three larger new stores in China, IFC and IAPM in Shanghai, and China World in Beijing, and two additional concessions in Japan. Offsetting these openings were 12 closures, including four from the previously announced rationalization program. We also continued our store refurbishment program, which included completing store refreshes in Canton Road and the Ocean Center in Hong Kong. In aggregate, 23 of our stores are now aligned to the new creative vision and we remain on track for 80 stores to be complete by the end of the year. In 10-4, retail revenue was up 2% at constant exchange rates, and finally, currency had a 2% benefit this quarter, resulted in reporting sales of 498 million sterling, up 4% year-on-year. Now, before I turn to guidance, I wanted to talk you through some of the brand highlights in the quarter on slide 4. We engaged frequently with consumers through our monthly B-series drop and the newly launched monogram capsule, which continued our investment in the Thomas Burberry print as a new house code. The monogram collection resonated strongly with consumers, particularly with Chinese millennials. We supported its launch with high-impact activations, including pop-up stores and department store window takeovers. This was highly successful in driving brand heat, reaching 120 million consumers globally. And social posts of the Monogram product drove higher than average engagement rates. More widely, our traction across Instagram and WeChat continued to progress positively. We saw growth in the number of followers and double-digit gains in the engagement rate per post compared to the previous quarter. and we continue to innovate on new platforms like TikTok, Andoyin in China, and for example, Andoyin uses generated content, which drove over one billion views by taking up our monogram challenge. In addition, key influencers continue to organically endorse Burberry products, and our editorial return on investment was higher than an already strong Q4. Turning to slide five, I wanted to talk about the top line dynamics for the remaining quarters this year. Over the coming months, the new product will build from around 50% now to around three quarters of our offer by the end of the financial year. In terms of comparable store sales growth, mainline is expected to accelerate as the new product builds through the year. However, we anticipate this will be partially offset in the second half by reduced markdown inventory compared with the prior year. Now, turning to the outlook on slide six. With this top line dynamic in mind, we maintain our guidance for broadly stable revenue and adjusted operating margin at CER in full year 2020. As previously announced, we anticipate a more pronounced weighting of adjusted operating profit in half two relative to half one than the prior year. Cumulative cost savings of $120 million will be delivered by the end of the year, and our CapEx program is on track. And finally, turning to currency, we now expect a $15 million benefit to adjusted operating profits and a $45 million benefit to revenue as a result of the further weakening of sterling against major currencies. And this compares with prior guidance of a headwind of $7 million at operating profits. Turning to the final slide, in summary, this was a good quarter in our multi-year journey to transform Burberry. We continued to build out the proportion of Ricardo's products in stores. We continued our journey of aligning distribution to a luxury positioning and our new creative vision. And we launched our monogram capsule and improved brand heat and consumer engagement sequentially. The implementation of our strategy is on track, and we maintain our full year financial guidance. And with that, we're happy to take any questions.

If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask a question, please ensure that your phone is unmuted locally. to confirm that star followed by one to ask a question. One moment for the first question. The first question is from the line of Elena Mariani with Morgan Stanley. Please go ahead.

Hi. Good morning, Annabel and Julie. A few questions from me, please. The first one is on the underlying moving parts of your like-to-like in the quarter. So I guess 50% of your retail sales are now growing strong double-digit. What about the rest? So how much is older collections and carryovers, and how much of this remaining 50% was discounted and perhaps going through outlets? So I'm trying to better assess whether – part of your comp was driven by higher discounting activity or whether the level of discounting was exactly in line versus last year. And then the second question, you seem to manage expectations on the like for like in the upcoming quarters, suggesting it might not be progressing in a linear way. Could you help us understand why this might be the case? If the new collection is growing high double digit and then it's going to represent 60% to 70% of sales by the end of the next quarter, in theory, you should see like-for-like progressing positively, given also that the overall like-for-like comp base gets easier in the second half. And then perhaps one final question on the gross margin guidance. You haven't changed it, and you're still talking about higher profits in the second half of the year versus the first half. But how should we tie in your gross margin guidance versus what you're expecting in your top line? Should we see the higher gross margin decline in the first half, the reflection of higher discounting, and then in the second half there should be less gross margin downside because you're going to discount less? So if you could help us understand this better, it would be great. Thank you.

Okay, thanks, Lionel, just to run through the questions. So the first one relating to the underlying like-for-like in the first quarter, the strength has really come from Ricardo's collections in the first quarter. And as we mentioned, Summer 19, the pre-collection for Autumn, and the runway have performed very strongly, so we've delivered a strong double-digit performance. It's not being driven by the discounting. Obviously, outlets are always a proportion of ourselves. We don't disclose the amount. But the success of this corset has been driven really by the strong response to the new product. Within the number, as we mentioned, the older lines, previous collections, and the replenishment business is going through a softer period and facing declines. What we're doing now in this next phase is we'll be rebuilding some of the main Burberry icons, you know, to support that replenishment business going forward. But the focus today has been on, you know, establishing the new collections and establishing Ricardo as the great designer this year. In terms of the like-for-like progression, so Ricardo's product has a percentage of our sales at the end of this quarter was 50%, as we mentioned earlier. We expect it to be around 60% to 65% by September and 75% by the end of the year. So in terms of overall, what we're flagging in terms of forecasting through the courses is the main sale periods for Burberry and major luxury brands are post the main seasons. So we have the sale periods in Q1 and also in Q3, with Q3 being the most significant. And what we're flagging is that this year we will have reduced inventory going into markdown in Q3. And so basically for the purposes of modeling, you know, we're guiding towards the comping Q3 in aggregate across all channels in all likelihood being lower than Q1 due to this factor. In terms of the growth margin guidance, the major thing that we highlighted is the investment that we're making in products. So it started last year with the investment in design and the new product. And so the gross margin was under pressure in the second half of last year already from this feature. And we therefore anticipate greater degree of pressure in the first half of this year for the same reason. When we come to the second half of this year, that impact will be more muted because we're lapping an already investment period in half two of the prior year. So absolutely no change to the guidance on gross margin. We're anticipating a headwind of around 100 basis points, largely due to product investment, and we expect a more pronounced effect of this in the first half, basically as we guide it.

And two very small follow-ups. The first one is that, so if I understood correctly, then we should expect like-for-like to sequentially improve in Q2 versus Q1, given that we're going to have more products from Riccardo in stores. And then we might see a bit of a deceleration in Q3 and then a reacceleration in the fourth quarter. This is the sort of trend we should expect.

Yes, yes, that's the sort of trend we should expect.

And then last point, on the gross margin, so by next fiscal year, then we should start to see an improvement instead because you're done with your investments in new products, and so you would expect to see a positive effect on the gross margin coming from perhaps the growth of leather goods, kind of new products in general. Should we model it this way?

I think we'll give further guidance in May when it comes to the gross margin, specifically because it heavily depends on the product mix. And in the first few years, We are investing in the leather franchise. We are elevating the leather that we're using and the designs that we're using. But because we want the value to be perceptible and that's our number one objective, we're not putting the prices up commensurately in the early stages of implementing the strategy. So I would see a recovery in gross margin as we gain scale in this area, but it won't happen immediately. So we'd encourage you to model that gross margin headwind for a period of time until we guide otherwise.

Great. Thank you very much.

Okay. Thank you.

The next question is from the line of Thomas Chauvet with Citigroup. Please go ahead.

Good morning, Julie Annabel. I have two questions, please. The first one on the Ricardo Strong Double Digit LFL, would you be able to single out some categories, collections, or price points that did particularly well. As you mentioned, Julie, the replenishment business is still weak. I understand TCU hasn't refreshed the heritage trench coat. That's a significant part of your southern profit. Why is that, and when can we expect him to modernize, perhaps, this important category? And secondly, on Greater China, you mentioned the benefit from repatriation of demanding into the mainland areas. driving that mid-teams LFL. With regards to Hong Kong, what are your teams saying on the ground? Are they concerned about the situation, about the future traffic? Do you have already a contingency plan in place on this profitable market in terms of, I don't know, staffing levels, store closures, rents for negotiation? I think you took some action in 2015 after the student protest of the autumn 2014 in Hong Kong. Thank you.

Okay, thank you. So Ricardo's product, as we mentioned, has grown from double digits across the two collections and the runway that he's launched. We've actually seen positive trends in all regions. We continue to build out the solid leather bag architecture, and we've seen the new product resonate very strongly, in particular with the Asian population and very strongly with the Chinese. Wholesale is also seeing a significantly higher sell-through than previous collections, and the sell-in of the May market recently with wholesale was very encouraging. In terms of specifically product categories, the apparel range has gone very well. So women's and men's apparel have seen a double-digit growth, and what we see is across, Riccardo had the persona of the man and the boy, the woman and the girl, And we've seen a success across all of those categories, including the younger generation, which has been very positive. Just moving on to the second part of your question relating to the heritage trench. Ricardo oversaw that at the time we were launching it, but it only had a modest impact. He will be turning his attention to some of the iconic Burberry styles as we approach this next year. But his first focus, as I'm sure everybody understands, has been on the main collections. and on the runway. China, you're absolutely right. We've seen a missing growth in mainland China, a very positive response from the Chinese consumer. But we've also seen, because I think government supported local consumption, we've seen a repatriation of spend away from some of the other Asian countries towards China, which overall, I mean, the key metric we look at is the Chinese as a nationality. And here, again, we're very pleased with the trend because we were on a low single-digit growth last year, and we've just delivered a high single-digit growth in China, or the Chinese globally. So we're happy with that. Coming on to Hong Kong, clearly we keep this situation under very close review. We did see an impact due to the protests. We saw an impact on Alexandra House and Pacific Place. And we monitored the situation and decided to make closures to the stores to protect our employees. So they were closed in total for about five days. So it has had an impact on Hong Kong performance in the quarter. Not that material at the group level, but we obviously keep the situation under close review. No change really to the rents. It happened a few years ago because of the downturn in the business with the economic cycle, but no really major change to the rents to date.

Thank you, Julie. Thank you.

Thanks very much, Thomas.

The next question is from the line of John Guy with Main First. Please go ahead.

Thanks very much. Good morning, Julian and Annabelle. Just following on from Thomas' points there, looking at the performance of the non-TC product during the first quarter, you mentioned that replenishment and old collections were in decline. Could you maybe sort of flesh that out a little bit in terms of looking at the replenishment versus the older collections and maybe quantify that. The second point is I think the average penetration of Ricardo's product over the quarter was around 35%. Appreciate that you ended at 50%. Can you give us the scale of the performance of Ricardo Tissue's sales within the accessories category during the quarter. And can you make also some sort of, I guess, a little bit more detailed comment around the performance of the refurbished stores against the non-refurbished stores? Thanks very much.

Okay. So with regard to non-Ricardo products, We've got a number of categories within there. We've got the replan lines. We've got the older collections. It's quite normal to expect to see a decline in older collections as fashions change. Replan, as I mentioned on the call, we are in the process of rebuilding the Burberry replan icons, and that will be the next phase of our transition that Ricardo will turn his attention to. So at this stage in our transition, we completely expected this to be the level of performance. In terms of the average penetration of 35%, yes, that's about right. We do see variability in that percentage across the store network. We put prioritization on the flagship stores and the stores in the major cities, so they tend to operate on a higher percentage. But basically, yes, it was 35%, 50% by the end, And we anticipate that moving to around 60 to 65 by September and absolutely in line with guidance, 75% by the end of the year. And that's what drove the success in the quarter. Just in terms of the categories and the scale of Riccardo's product, as we mentioned, the leather franchise and accessories or leather bags within that franchise, we anticipated this being a longer journey. partly because we are elevating the product in this category, investing in solid leather shapes, investing in high-quality leather, investing in new designs and fabrications. And therefore, we anticipated this category being under some pressure in these initial stages, and we've guided to that. It's within our guidance. We don't guide specifically by category on what's Ricardo's and what isn't, but it's not this similar to the overall shape that we've got. And then in terms of the store refurbishment, we are really pleased with how this is progressing. As you know, we've got an ambitious plan of store refurbishments. We plan to reach 80 by the end of March 2020. And the reason we're focused on this is because what we see is when we have three ingredients together, we see an inflection in the performance. And one is a refurbished store. Two is a larger proportion of Riccardo's product in the store. And three is a retail excellence program having run through raising the capability level of our team. And when we see the three together, we see an improvement. We track it rigorously as part of our KPI dashboard internally, but we don't disclose the performance of the stores externally, but we do see a good return on that investment.

Thanks, Julie. Just maybe following up on that, I mean, over the course of the quarter and for the entire quarter looking at the performance But the sales densities, they seem to have gone up by about a mid-single-digit rate over the quarter. But I would expect to be probably running at a double-digit pace for those refurbished stores. Would you be able to sort of confirm that that's the kind of sense that you see based on those three magic ingredients you just mentioned? Yeah.

I mean, we do overall see an improvement in the productivity of those stores when we've got the three factors in play, but we don't disclose sales entities, as you know, John.

All right. Thanks, Julie.

Thanks. Cheers. Bye.

The next question is from the line of Anne-Laure Bismuth with HSBC. Please go ahead.

Yes, hi. Anne-Laure Bismuth from HSBC. I have two questions. From... On your plan of eight-star refurbishment plan for this year, is there any particular facing for the next three quarters? And regarding the store opening, so you open nine stores in Q1, three in China. Can you remind me of what is the plan for this year, please, in terms of overall openings and also store openings in China? Thank you.

Okay, sure. In terms of the phasing of the stores, we would anticipate the second half to have a higher degree of store refurbishments. This is in our plan at the moment. We've done now 23 to date, and we'd expect a tick up in the second half, largely as the teams have gone through the planning stage and they can move more towards execution. We're still on track with delivering 80 by the end of the year. In terms of store openings this year, the plans going forward?

So we don't guide specifically on the number of stores, but what we've said is that obviously space for the full year contribution to retail sales will be broadly stable, with minus one in the first half and plus one in the second half.

Thank you.

The next question is on the line of Melanie Southey with JP Morgan. Please go ahead.

Yes, good morning. Thank you for taking my questions. The first one is I was wondering whether you can help us understand a bit better the markdowns impact, so the fact that you are aiming to reduce the markdowns activity, and have already done so in quarter one, I believe, a little bit. Maybe you can share with us, I don't know whether you can, but directionally, you know, what sort of percentage into total weather markdowns and where you aim to get it over the course of the next year and two years in your business. That would be my first question, sorry. The second is on handbags. When did you expect that the pressure on the former collection stops and we start seeing the most recent reference positive momentum filtering into your numbers? I know you said it was a longer journey, but when is that inflection point in your mind? My third question is on European local consumers. If I understand well, the UK was particularly strong helped by tourism inflows. So the European consumer appears to still be pretty weak in this turnaround. What are you aiming to do to revitalize this market in particular? I appreciate America's will maybe take longer because there are some image issues that are stronger in the U.S., but I was interested in the European market. And my last question is, sorry, can you share with us how big Hong Kong is for you in percentage terms and what was actually the performance in this quarter? Thank you.

Yeah, sure. Okay. So first of all, in terms of the markdown impact, To start with, our strategy has been really clear about removing non-luxury distribution from our network, and this has been focused initially on wholesale with some outlet closures. Simultaneously, our objective is to drive full-price mainline and digital growth, and therefore we expect over the years of the strategy to have a reduced element of markdown. Last year we did have, we were obviously going through a creative transition and in the third quarter in particular we were managing those inventory levels accordingly. This year what we're trying to do is be as open and transparent as possible and assist with the guidance around the comp over the courses and because the main sale period in our industry is occurring in the third quarter predominantly we're really flagging to you that we'll have reduced levels of inventory going into markdown in Q3. And just for the purposes of modeling, we're anticipating that the Q3 comp in aggregate will probably be lower than Q1 due to this factor. Over the next one to two years, we'd expect this sort of trend to continue with more focus on mainline and digital full price. If we move out to the question about the handbags and the collections, becoming positive. You know, we've always said that in terms of leather, we are building out the architecture. We're using much more solid leather shapes as opposed to canvas type materials. And we definitely focus on the value being protectable to the consumer, hence one of the pressures on the growth margin. We have got the headwind from some of the older style bags and some of the previous collections. And we'd anticipate that remaining a headwind probably during the course of this year, but expect to see some signs of improvement in the next financial year. But clearly we'll keep you updated on the progress. In terms of the tourism flow in Europe and how we intend to revitalize Europe, in terms of our brand and the image of our brand, when we did the brand work a couple of years ago now, our brand was the strongest in Asia. And as you mentioned, Melanie, we had a weaker positioning in the US wholesale presence in non-luxury. And what we've seen is the traction, the first traction is coming through Asia. We've also seen an improvement in European performance. You mentioned about Europe. So in terms of Europe overall, last year we were low single digit. We've had a slight improvement in this quarter. And we've had a more marked improvement coming through in the UK, partly impacted by tourists. The revitalisation of Europe is very much part of the revitalisation of the Burberry brand holistically. So the use of social media, the use of influencers, you know, the collections, the B-series, the Monogam collection recently, are all designed to reignite heat around the Burberry brand. And that has been successful. As you know, we've seen a double-digit increase in the levels of engagement around this. And Europe is very much part of that activation campaign. The store refurbishment program runs globally with a focus also on Europe. So we do expect to gain traction, although I think inherently it is a more difficult market than, say, Asia at the moment. In terms of Hong Kong, Hong Kong is 6% of our sales. And the performance in Hong Kong has generally been somewhat mixed largely because we have tourist flows going through Hong Kong and we've recently had the impact of the protests that we mentioned in answer to John's question earlier and we have had some store closures relating to those protests as we mentioned, five days in total. So yeah, Hong Kong is I think reasonable, I would say it's reasonable but it's still slightly in decline in this quarter. Thank you.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please press the star followed by the one on your telephone. The next question is from the line of Roger Fujimori with RBC Capital Markets. Please go ahead. Sir, your line is currently open.

Oh, hello. Hi, good morning. I'm Juliana Bell. Hi. Hi. Could you please take a question, please? Could you talk about the ASP trend in Q1 with the greater availability of Ricardo's new collections. My second question is on e-commerce. I appreciate it not disclosed, but if you could give a qualitative idea of how online retail growth in Q120 compared to online growth in Q119 or Q418. And if you could talk about the performance of Burberry.cn would be helpful. And my third question is just if you could talk a little bit about what do you see in terms of U.S. luxury market trends in the June quarter versus the March quarter. Thank you.

Yes, sure. So first of all, in terms of the ASP trend, we've seen Q1 driven largely by mix, so product mix. And certain categories have done extremely well, as we mentioned, apparel across men's and women's. and a little volume, so it comes from those sources. No major changes to like-for-like prices, but obviously there has been a change to the product range, which has affected the mixed performance. In terms of e-commerce, the performance in digital has been led by China, and we've seen strong double-digit growth through targeted innovation, such as social gifting on WeChat, that we did. We launched WeChat mini program on Chinese Valentine's Day as one example of what we've done. We've continued the success in generating inspiration through the B-Series and the Monogram program was very successful in terms of exclusive product being available on Instagram and on WeChat. And as you probably know, we received a prestigious Webby Award in April 19 for the best social content within fashion and beauty. Recent innovation also on the Chinese platform was the use of Doyon, where we had a monogram challenge. And again, that was reaching one billion views from users generating their own content. So I think we've been really successful in that space. In China, the digital performance has been very strong equally across Burberry.com and our third-party providers. So both have been performing extremely well. In terms of the U.S. luxury trends, we have certainly seen a softness in tourist flows into the U.S., and particularly when we look at airline flight bookings, et cetera, from the Chinese. We've seen a weakening of tourist flows from the Chinese. It's largely a domestic market, and we actually saw, when we look at U.S. alone, not America, we actually saw an improvement from Q4 to Q1. So we were slightly negative in Q4, and we delivered a low single-digit growth in Q1. So we are starting to see, you know, an improved traction in the U.S. market.

Thank you.

Thank you.

The next question is from the line of Peter Kester with One Investment. Please go ahead.

Hi, thank you for taking the question. I had three short questions, please. I'll go one at a time. When you get to the end of the year, you'll have about 25% that is not on Ricardo tissue product. Can you give a sense as to whether there's any particular category concentration of what will remain at that point?

Yes, sure. It's really the need for Ricardo to develop the replan lines so that we have new icons of the future. it's really just building across those categories. I mean, there may be more focus there on the trench range, but it's broadly across the categories.

Okay. And then as Ricardo's product takes up a larger proportion of a range, is there a point or a threshold of Ricardo tissue density that pulls through the balance of the range, partly because maybe what's left is more simple, but also just the general category range? is pulled by his products that people buy the balance of the category as well. Do you see threshold points there?

We haven't seen that particularly. I think, no, I think we haven't seen that.

Okay, so if he crosses, say, 60%, 70%, you don't see necessarily a pull, say, the simple black shirt or the trouser matching the top, this sort of thing?

Not at this stage. His collections have been quite distinct from the previous replan line and the previous collections. So, no, we haven't seen the sort of pull-through factor at this stage. But I think as his collections build, you know, there could be a halo effect from that. But I don't think it will be worth cuddling it out at this stage.

And then the last question was just on the gross margin. As you talked about the investment made last year and primarily in leather and shoes, impact and gross margin rolling across, annualizing through the first half of this year, and then the base effect balances off. I was wondering, on the other side, if you could give any comment about how Ricardo tissue design product, which is not so much affected by this, has an impact on gross margin through content or just through the heat and newness, maybe pulling better price performance, better ASP performance mix you highlighted earlier. Is that having an opposite or different effect on gross margin?

Yes. At this stage, what we see is that Ricardo's product across the board at this stage, and particularly in the leather range, is at a lower gross margin due to the investments we're making and the value being perceptible to consumers, and in particular, new consumers. there is increased investment in design fabrication in order to elevate that product. And at this stage, we're being very careful about moving the price accordingly. So you've got this growth margin impact coming from the new range. As you say, the second half, that becomes more muted as we annualize that.

Okay, but the second half last year, you had very little tissue product, it was more leather. So Is that then in the second half being the higher amount of tissue product being basically set off by lower markdown?

We did have an impact even though Ricardo's product was only launching in the final month. The design charges are going through the P&L ahead of that. So we did have quite an impact on the gross margin in the second half of last year. As you say, the markdown does have an impact. So that will give us some gain in the second half of this year also, yes.

Great. Well, that's great. Thank you very much for the help.

Okay. Thank you.

The next question is from the line of Charmaine Yap with Redburn. Please go ahead.

Hi there. Good morning. Thank you. A few questions, please. The first one, I wanted to clarify on your markdown strategy. Does it mean, Julie, that you will be protecting all of PC's products from going into markdown, and particularly the leather bags?

I mean, we're going to take pragmatic decisions around it. We're not isolating any particular part of the range. We're just saying that we will have reduced inventory. We've had improved sell-throughs this year compared with last year of the range, and we just expect to have reduced inventory. But we're not going into the specifics of, you know, what we're marking down and what we're not.

Okay, thank you. And also my second question will be, Can you share some of the changes that you've done in terms of your store refurbishments other than the optical changes to the aesthetics? For example, are you deploying less product density, maybe reallocating staff differently or reallocation space? Is there anything you can share there, please?

Yes, of course. So what we're doing is, you know, Ricardo's designed the new look of the stores using a range of colors, as you've probably seen, such as the honey and the pistachio are firmly there the pistachio from the english rose the honey from the trench we have given more space allocation to the leather range so you've probably seen if you've been into some of our main stores that there's a focus on leather usually on the floor as you walk in and we're also using furniture that allows the consumer to test the bag which is often what they want to do not to see it on a on a shelving on the wall but actually be able to put it on a table and test it so we've We've organized stores accordingly relating to that. We've also thought through the zones in the store in terms of the red zones, the blue zones, and making sure that the product is in the right location for the consumer, for ease for the consumer. We've also done a huge amount of work on the back of house, making it easier for the retail associate to ensure a more streamlined service to the consumer. Reorganizing store rooms, in particular in Asia, that's been quite a major project. And also driven, as you know, the Retail Excellence Program, which is designed to give our consumers a more elevated experience when they come into a Burberry store.

Okay, thank you.

Thank you.

Okay.

This concludes our question and answer session. I would like to turn the conference back over to Julie Brown for any closing remarks.

Okay, well, thank you very much for joining this morning's call. Our next update is on the 14th of November with our half-year results, and we look forward to speaking to you then, if not before. Thank you.