Burberry Group plc

We actually have some seats here in the front row. This is like the first day at school. No one wants to be, no one wants to be, it's not like a fashion show because at the fashion show, they really want to be seated in the front row. It's all about your seat. In any case, good morning and welcome to our interim results and our update on the Burberry Forward Strategy. I'm Josh Shulman, CEO of Burberry, and with me is Kate Ferry, our Chief Financial Officer. One year into Burberry Forward, my belief in this extraordinary British luxury house is stronger than ever. Since we met last November, we have moved from stabilizing the business to returning to growth. I am encouraged by the signals I am seeing throughout the business, which provide initial proof points that our Burberry Forward strategy is working. With our timeless British luxury brand expression and an improved product offer, our brand has become more desirable. We're attracting new customers to the brand while welcoming back existing customers, resulting in sequential improvement in customer growth. And these customers are responding strongly to our autumn and winter collections, with a significant increase in sell-through rate compared to last year. We're accelerating our momentum in our iconic categories, outerwear and scarves, and now this growth is extending into additional categories. In Q2, we returned our retail business to comp sales growth, for the first time in two years. And now, our most important wholesale partners are seeing the momentum as well. We recently completed our summer 2026 wholesale market, and the reaction has been very positive, with a significant increase in orders from key opinion-leading partners in the US and Europe, an incredible vote of confidence in our product and Burberry's relevance. Well, I am pleased with what we've achieved in our first year of Burberry Forward. These are just the first steps to reigniting desire. There is a lot more to do, and I am looking forward to building on these foundations in the year ahead. I will now turn it over to Kate to take you through our first half financial results, and I will then update you on our strategy, our progress, and our priorities as we look to year two of Burberry Forward.

Thank you, Josh, and good morning, everyone. For the first half, comparable retail sales were flat, with sequential improvement between quarters. In the second quarter, we delivered growth of 2%, our first positive comp growth in two years. Total revenue was 1.03 billion in the first half. with adjusted operating profit of £19 million. Free cash outflow was £50 million, an improvement from this time last year and in line with our expectations for the half. When we launched Burberry Forward a year ago, we talked about actions to drive sustainable performance. We've returned to adjusted operating profit in the first half. Our gross margin is recovering, up 410 basis points at constant exchange rates versus last year, to 67.9%, driven mainly by a healthier inventory position. We continue to bring scarcity back to our inventory model. We've tightly managed buys throughout the half, with net inventory down 24% versus last year. Following the expanded restructuring programme announced in May, we're on track to deliver 80 million annualised savings by the end of the year. And finally, we continue to invest our capital where we know we can get the highest returns, with continued focus on cash generation. I'll now take you through a more detailed review of performance, starting with revenue by channel. I'll refer to changes at constant exchange rates. Retail revenue declined by 1% during the half. Space reduced by 1%, while comparable retail sales remained flat year on year. Wholesale revenue decreased by 11%, slightly better than our guidance of a mid-teens decline, reflecting phasing and some uplift in in-season orders from our key strategic partners following improved sell-out of Autumn 25. Licensing revenue was down 8% versus last year, with ongoing strengths in our fragrance and beauty businesses, including the Goddess and Her franchises, offset by the planned destocking of older fragrance lines. As a result, total revenue for the first half declined 3% at constant exchange rates, or 5% on a reported basis. Turning now to regional performance. Comparable retail store sales were flat or positive in all four regions in the second quarter. Traffic at our stores remained challenging throughout the first half of the year, but we're pleased with the improvement in conversion we've seen. Greater China led with the strongest improvement as compared with Q1, with 3% comparable retail sales growth in the second quarter. This was supported by a strong Chinese Valentine's Day, Globally, the Chinese customer group slightly lagged the regional performance, with growth in locals offsetting the decline in outbound tourist flows. Asia Pacific also improved to flat in the second quarter, with the first half down 2%. Japan returned to growth in the second quarter, up 2%, offsetting decline in South Korea. Americas saw 3% growth in the second quarter and the first half. The region is continuing to benefit from new customers, offsetting lower tourist spend in the United States during the summer months. EMEA remained in line with the first quarter despite reduced tourism activity, growing 1% in Q2 and the half, supported by growth in local and returning customers. Moving on to the income statement and staying with changes at constant exchange rates. Gross margin was 67.9%, a 410 basis point improvement year on year. I'll give more detail on this in just a moment. Adjusted operating expenses were down 5% year-on-year at constant exchange rates following the delivery of our expanded cost savings programme, as well as non-recurring store impairment headwinds in the prior year. We remain on track with our cost programme, expecting to deliver £80 million in annualised savings by the end of the year. As mentioned the last time we spoke, we're investing behind our journey to reignite desire, restore growth and continue on our path of sustainable value creation. We've prioritised investment in the first half, using some of these savings to invest in consumer-facing areas such as marketing. This year, we continue to invest a high single-digit percentage of sales in our brand, with a focus on maximising our return on investment. We delivered an adjusted operating profit of £19 million with an operating margin of 1.9%. Adjusting items amounted to £37 million. This primarily related to restructuring costs resulting from the transformation programme announced in May. The business has demonstrated resilience during this period, allowing us to progress swiftly through the programme over the summer. Our full year guidance remains unchanged, with restructuring costs expected to be around £50 million. As a result, we've reported an operating loss of £18 million for the first half. The net finance charge was £30 million, of which £23 million was interest charge on lease liabilities and £7 million was other financing interest. Gross margin benefited mainly from the non-repeat of inventory actions taken last year. As a reminder, these inventory actions were a combination of provisioning and discounting. This year, we have significantly less inventory, down 24% at the end of the first half. We're also seeing the benefits of our transformation programme in gross margin. We experienced a free cash outflow of £50 million in the first half, an improvement versus this time last year. Working capital was £43 million outflow given the seasonal inventory build-up ahead of the festive period, albeit still reflecting tighter inventory management than this time last year. Capital expenditure for the period was £38 million, with investment targeted to those projects with the highest return on investment. In our retail network, we're focused on amplifying our most iconic categories. We've launched over 100 scarf bars to date and are on track to deliver 200 by the end of the year. We also opened a new showroom at our headquarters here in London, which is already driving cost efficiencies and enabling closer collaboration across our global retail teams. Borrowings reduced by £221 million following the repayment of our September 2020 bond. And we closed the period with net debt of £93 million, or £1.1 billion including lease liabilities. At the end of the period, net debt to adjusted EBITDA was 2.2 times. We remain comfortable with our liquidity in Headroom and are focused on continuing to reduce our leverage through the actions we are taking to rebuild profitability. Turning now to the outlook for fall year 26. While we remain in the early stages of our turnaround, we're encouraged by the progress made so far and expect to see the impact of our initiatives build into the second half and beyond. The macroeconomic environment remains uncertain, but our focus this year is to build on the momentum in reigniting brand desire as a key requisite to growing the top line. we will deliver continued margin improvement with a focus on simplification, productivity and cash flow. To help you with modelling, in full year 26 we expect no changes to our guidance of retail space remaining broadly flat and annualised savings of around £80 million alongside a £50 million restructuring charge. Within wholesale, we expect a mid-single-digit percentage revenue decline for the full year slightly ahead of our original expectations and returning to growth in the second half. This reflects our key wholesale partners' confidence in our new direction. We expect capital expenditure of around £120 million, slightly lower than initial guidance as we've been very intentional in our investment approach, focusing on the highest return on investment projects during this year of transformation. And finally, we expect currency to be a headwind of around £50 million on revenue and around £5 million on operating profit, all based on the 24th of October spot rates. Further detail can be found in the appendix of this morning's statement. As we move into our second full year of Burberry Forward, we are confident that we can build on the progress we've made in quality of earnings, continuing to improve performance and driving sustainable long-term value. I will now hand back to Josh.

Thank you, Kate. As we move into the second year of Burberry Forward, we are increasingly confident that we're on the right path to build brand relevance and value creation. If the strategy for the next year of Burberry Forward looks very similar to what we presented last year, this is intentional because we are now focused on accelerating and delivering on our four pillars with consistency. placing the customer at the center of everything we do. We will continue to anchor Burberry forward in timeless British luxury as we enhance our product marketing and customer experience to engage a broad luxury audience. This will be underpinned by an organization that is fit for purpose and executing at pace. Starting with our brand, Our traffic and sales inflected in August as we launched our Chinese Valentine's Day campaign, followed by the Back to the City campaign, focused on a more polished expression of city dressing against a backdrop of iconic London landmarks appealing to our investor customer. Next, the elegance of our winter runway campaign, set in a quintessentially English country house, attracted our opinionated customer, while the winter wardrobing campaign showcased looks that could be worn every day, appealing to all of our customer archetypes. Collectively, these campaigns have driven an improvement in brand engagement in September. In addition to these fashion campaigns, we have continued our institutional outerwear campaigns with the latest installment of It's Always Burberry Weather, Postcards from London, which launched in October across all of our channels.