Burberry Group plc

Good morning. I'm Kate Ferry, CFO of Burberry, and with me today is Josh Shulman, our CEO, and Lauren Wu-Leng, Head of Investor Relations. There are slides to accompany this call on our corporate website, and a transcript will also be available later today. In terms of running order, I'll go through our performance in the third quarter, and then Josh and I will be happy to take your questions. Since our last update just a couple of months ago, we have continued to see positive signals across the business, which provide further proof points that the Burberry Forward strategy is working. For the third quarter, comparable retail sales grew 3% versus last year, a sequential improvement on Q2. As planned, we delivered a higher quality of sales across all channels and regions as we returned to a shorter, shallower and more discreet markdown period versus last year. We saw continued brand momentum with the outerwear and festive campaigns, and these were further amplified with activations around the world. We delivered a double-digit improvement in Gen Z customer growth in Greater China and Asia-Pacific, with growth in younger consumers across all regions. Our hero categories continue to outperform, with scarves and outerwear both up double digits, and this momentum is now extending into handbags and ready-to-wear. We've also seen a significant improvement in sell-through, driven by a strong customer response to our Spring 26 collection. In stores, we improved retail productivity and continued the rollout of our scarf bars, reaching 190 to date with 200 on track by year end. Moving on to the quarter's retail performance on slide 3. Comparable store sales grew 3% in the quarter. The impact from space was flat, leading to 3% retail sales growth at constant exchange rates. Currency was a 2% headwind in the quarter, with retail revenue landing at £665 million, up 1% at reported exchange rates. We saw full price sales accelerate this quarter, offsetting reduced markdown activity as we returned to a private sale format in stores and online. The shorter, shallower and more discrete markdown period resulted in a margin improvement overall as anticipated. All four regions delivered flat or positive comparable sales for the second consecutive quarter. Traffic continues to be challenging, but conversion and AUR were up in the quarter, reflecting a strong consumer response to our refreshed ranges. Asia-Pacific led with the greatest sequential improvement, up 5% from flat in Q2, driven by a strong performance in South Korea. South Korea returned to growth at 13%, supported by both local customers and increased tourist spend, particularly from Chinese visitors. Japan grew 2%, in line with Q2, though reduced tourist activity continued to be a headwind. Greater China grew 6%, improving from 3% in Q2, fuelled by local spend. Similar to Q2, Chinese customers outside the region slowed, but local demand offset the decline with the overall cluster turning positive. EMEA was flat year on year, continuing to be impacted by reduced tourist activity. The Middle East, while a smaller part of the business, showed notable strength both locally and across the region. Americas grew 2%, supported by local spend during the festive period and continued growth in new customers. This was slightly below Q2 due to the higher penetration of markdown activity in Q3 last year. We began Q3 with the latest installment of It's Always Burberry Weather, Postcards from London, and followed this with our festive campaign, which drove strong engagement across our channels. Average Instagram reach was up double digits, complemented by a strong performance across digital and social platforms in China. Branded search, i.e. customers looking for Burberry on Google, was up double digits globally. This year, we're excited to celebrate our 170th anniversary with a series of innovative campaigns and activations, starting with the launch of our Gabardine capsule earlier this month. In terms of product, our customers are responding to our timeless British luxury expression and synchronicity between our runway looks and commercial core, enabling us to reach a broad luxury audience. Building on our strength in outerwear, our stronger assortment of knitwear, trousers, skirts and dresses has given customers more ways to wear Burberry head to toe, driving momentum in ready-to-wear. We've strengthened our foundation and accessories, sequentially improving quarter on quarter, led by scarves and bags. Half of scarf purchases were personalised, highlighting our customers' desire for unique pieces anchored in Burberry's brand codes this festive season. In distribution, we continued our focus on enhancing the in-store experience through richer displays and cross-category merchandising. We also delivered a series of high-impact festive activations to engage customers globally, from the spectacular Bloomingdale's Takeover in New York City to an ice skating rink in Beijing, and finally, back home in London with a retail pop-up at the iconic Claridge's Hotel. In addition, our scarf bars continue to outperform and are helping to drive store productivity. Building on this momentum, we're launching more category destinations in the year ahead, including for trench coats and polo shirts. Turning now to the outlook. As we move into the final quarter of the year, the impact of our initiatives continue to build, giving us increased confidence in the direction of the business. We expect adjusted operating profit to be in line with consensus for full year 26. 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. And with that, we will now be happy to take your questions.

If you would like to ask a question, you may do so by pressing star followed by one on your telephone keypad now. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your phone is unmuted locally to confirm that star followed by one to ask a question. Our first question is from Antoine Belge from BNP Paribas. Please go ahead.

Yes, good morning. It's Antoine Belge at BNP Paribas. So two questions, if I may. The first one is about the very good performance of BNP. Greater China, so could you maybe comment a bit into more detail about the mainland and Hong Kong, et cetera? And so why is it accelerating? Which product are we resonating a bit better with that particular customer group? And my second question is about the retail productivity. I don't know if you can mention figures or at least – some flavor around how it's evolving, especially compared to the more recent period. Thank you very much.

Morning, Antoine. Perhaps I'll hand over to Josh to chat through some of the products and so on. that we're seeing really resonating in China. I mean, I think just on the productivity point, we're not giving any specific targets, but clearly you can see, you know, sales up 3%, flat space, retail productivity is certainly improving. And that really is being driven by all of the initiatives that we highlighted today, whether that's, you know, product resonating well, and obviously we highlight specifically initiatives like Scarf Bar and some of the things that you've been seeing happening within the store, but we're not putting a specific number on it. Josh, do you want to tackle the China and products?

Sure. So overall, we're very pleased with the Greater China performance, which accelerated in the quarter. And it was really throughout Greater China, but led by the mainland. And the most important flagship cities were really in the lead. So strong growth and exactly where we would want it to be. And it reflects, you know, the strong engagement of Gen Z in that market, which is leading us globally. The Gen Z are up double digit, and it was really led on the retail equation in terms of conversion and AUR. And I can just say having visited the region recently and comparing, you know, store after store to my visits last year at the same time, you can just see the difference in the offer, in the physical store anchored by a scarf bar, in the more robust visual merchandising highlighting a product range that That was really designed for broad, universal luxury appeal. So you can see the diversity of customers in the stores attracted to a wider array of products. And so we were we were selling products. We were led by outerwear and scarves, but now we're seeing the product momentum extend. And in China, the ready-to-wear category led by knitwear, frankly, anything cashmere, that we had in the better and best parts of our pyramid were selling. So cashmere coats, cashmere knitwear with the EKD, the equestrian knight design logo, you know, all of those were leading and starting to see really positive sell-throughs on our flagship vintage check handbags. which we had a collection that was trimmed in ruby red, which really resonated with our Chinese customers. And so, you know, all the work that the team has been doing there in terms of, again, localizing the marketing uh with um uh more brand ambassadors this year we have four brand ambassadors versus one last year in terms of disruptive activations like taking over the um the iconic uh ice skating rink at wanfujing in beijing you know all of those are um really um uh working, frankly, to drive engagement of our Chinese customers.

Thank you. If I can sneak in just a follow-up. So, in China, has there been any store network changes, other openings or closure in the quarter?

Nothing significant. You know, just the the normal pace, but nothing significant to announce.

Thank you very much.

Thank you. Our next question is from Grace Morley with Morgan Stanley. Please go ahead.

Hi, Grace. Hi, Grace.

Sorry, Grace, we can't hear you. If you could just check if your line's open. Okay, so we're going to just move on to the next question for the time being. Next question is from Thomas Chauvet from Citigroup. Please go ahead.

Morning, Josh and Kate. I have two questions, please. The first one on Korea, you indicated it was a bright spot. Obviously, it's an important market for you. I think the second largest up to China in Asia. What is Burberry specific versus the broader market, and what are the successful actions you've had there, or even in China, that you can incorporate into other Asian markets, which have been a bit softer in the period, whether Japan or Southeast Asia? That's my first question. And secondly, on wholesale, you've turned your wholesale business into in just over 12 months with renewed trust from your key partners and solid revenue guidance for the second half. Can you update us on two regions? One, Europe, is the closer of smaller European accounts largely over? And with regards to the U.S. department stores, any material exposure to the fax global situation? And more generally, how do you assess the health of your top four, five U.S. partner at the time? There seem to be increasingly excited to order merchandise from Burberry. But some of them, as we know, are in a relatively fragile financial situation. Thank you.

Yeah. Hi, Thomas, I will take both of your questions, which are both really good questions. So starting in Korea, you know, we couldn't be more delighted with the traction there. You know, Korea is an extremely important market. For Burberry, we were one of the first to make Korea a real focus for the local customer there. 20 years ago, Korea was thought of as more of a duty-free market, and I think several of my predecessors a long time ago really focused on that region for the locals. And, you know, what we see there today is that, you know, the overall market is improving, but based on our brand position in Korea, you know, we are outperforming. a stronger market there. And what we hear is that we're among the top players in the market. And we've really worked in enhancing that relationship between our merchants in the center here in London and in our local markets. And I think the work that's been done in Korea is a great example of that in terms of how to phase their outerwear cycle and, you know, to be seasonally appropriate for the different times of year. And so we're really seeing the strength led by outerwear and scarves there. But like other parts of the world, we're now also seeing that strength extend to other parts other products as well. Of course, you know, in terms of Korea tourism, this quarter, we benefited from double-digit growth, but that was both on the tourist side and on the locals, which are the vast majority of the customers there. You mentioned, you know, the other areas in in Asia. You'll remember earlier this year, I guess it's last year at this point, we reorganized our Asia regions around a greater China region and an Asia Pacific region. So now we have a president who sits in Seoul, but she has a team in Seoul, in Tokyo, and in Southeast Asia and Oceania. And so you're seeing a lot of the best practices from Korea starting to be implemented across the region. And it's really a terrific team with a mix of local expertise and central guidance. So we have great people in Korea. in Singapore and in Japan as well. Moving to your question about wholesale. So I think it's always important that we frame wholesale as a relatively small part of our business. It's about 12% of the business. And for us, particularly a brand that is in a transformation, I find being present, you know, with the top of line wholesale partners in the world to be really important because that's a place where customers can discover the brand. And, you know, frankly, it's a place where we benchmark ourselves against the competition, too. And. And so, you know, obviously, you know, it's a dynamic time in the in the channel. So, you know, Saks Global, you know, is a, you know, a long term partner. of ours. I'm not going to comment specifically on our exposure as part of their restructuring, but I would say it is early days with the new leadership team, but we are a confident in the, we're confident in the leadership, we're confident in Geoffroy and his team that they will be able to restore Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman to their rightful place in the luxury landscape. I would also highlight that, you know, Saks Global is a very important customer of ours, but we also have other important customers in the market. And, you know, During this quarter, we were really proud to have our takeover of Bloomingdale's 59th Street in New York City with the spectacular activation. I don't know if you made it out to New York to see it, Thomas, but if not, you really missed something because we wrapped the facade in 126,000 twinkling lights in the shape of a Burberry scarf, and we had pop-up trucks on nearly every floor in the building. And it was truly, truly spectacular. And, you know, that's the types of activations and the types of reach that you can achieve when you partner with the best retail customers in the world. Your last point about Europe. You know, I think that is an ongoing effort, you know, and that's dynamic because, you know, the small multi-brands evolve and, you know, we want to be alongside our luxury peers. And if those accounts no longer have the luxury peers, then we tend to exit them.

Thank you, Josh. Thanks, Tomas.

Our next question is from Chiara Battistini from JP Morgan. Please go ahead.

Thank you very much. Good morning, everyone. I have a couple of questions, please. The first one on the like-for-like, the 3%, if you could provide us with any color in terms of the split between pricing, volume, and possibly also maybe the mix effect from shifting from a discount to full price sales. And the second question is, more on the ready-to-wear and on the handbags and accessories in terms of how to think about the evolution of the product assignment from here in terms of newness versus more activation. Any color you can give us on the upcoming initiatives on this category specifically, please. Thank you.

Good morning, Chiara. Perhaps I'll take the first one on the retail equation, and then I'll hand over to Josh. And bags. So, yeah, the way to look at the three percent, Chiara, is that, you know, traffic, much to hearing from others, is still quite challenging everywhere. But we are really, really encouraged by what we're seeing in terms of conversion. So strong conversion everywhere. you know, customers coming in certainly liking what they're seeing. On pricing, so Q3, you're probably not surprised to hear that the AUR was up because, of course, we've reverted to the private sale this year versus the very public sale last year. And I think on pricing more broadly, you know, we've talked to you a lot about our pricing strategy with the good, better, best tiering. And I think I would say that we are we are seeing that our pricing strategy is really, really working. So we're seeing, you know, good traction both at the top end. You know, we've talked before as softs, for example, as a good category to showcase this, where we're doing extremely well in some of these high-end cashmere capes, as well as the kind of silk scarves at the lower end, likewise in outerwear. You know, we see heritage is a core category, but within that, for example, the Kensington coat in cashmere selling really well. So I think we're very pleased with how pricing is playing out. Josh, do you want to take on that?

On the product piece? Yeah, I think you actually touched on it somewhat in your answer. You know, as we look at the quarter, you know, the products are really having a broad universal appeal. And, you know, we are very pleased with the traction that we're starting to get beyond the core outerwear and scarf categories. So in handbags, for instance, you know, we have the good, better, best strategy. And, you know, we were really seeing traction at all levels. So, you know, we talked last time about the introduction of the horseshoe bag, which is an opening price bag. Also, you know, we've had our core vintage check line, which up until this season, it had been a long time since we had provided newness there. And we did the core shapes with a ruby trim. introduced a few new small shapes and that had a very strong response globally and then in the best category our Our B-clip bags, our beautiful suede or leather Cotswolds totes with the iconic hardware, those have also been resonating with customers. Kate touched on our traction in cashmere Kensington trench coats, and now we're seeing that cashmere authority that we have in trench coats and scarves also translate into knitwear, which was a big part of our campaign. You know, you saw in the Twas the Night Before festive campaign, you saw many people of different generations and different walks of life wearing a cashmere wool Burberry sweater with bold branding. of the equestrian night design and the Burberry wordmark, and that was a bestseller across regions.

Thank you very much.

Our next question is from Carol Maddow from BOP, please. Please go ahead.

Hi, yes, good morning. Just a quick question from Mia, please. Can you share any color on the exit rate and on current trading? Are you seeing the start of Q4 being broadly in line with Q3 or anything to call out here? Thank you.

Hi, morning, Carol.

I think that we don't typically comment on how we traded month by month in the quarter, but I think fair to say we were really pleased with how we ended the quarter. And again, look, on Q4, we've been really pleased with Q3. I think the shape of Q4, as you know, is going to be very different because, of course, Lunar New Year is a couple of weeks later than it was this time last year. So I'm not going to comment on current trading, but kind of even if I could comment, It really is too soon to make a call on it. But as I say, we're really pleased with how Q3 played out. And, you know, I think we've got a fantastic Lunar New Year capsule. We've got some really good campaigns around it as well. And, yeah, we look forward to updating you in May.

Thank you. Our next question is from Grace Smalley with Morgan Stanley. Please go ahead.

Hi, good morning. Thank you. Sorry for earlier. I was disconnected. I'll just give it to one question as I know we're coming up on time. I just wanted to ask a follow-up on China, please. Thank you for the color earlier in the call. Based on what you said, it sounds like as if you attribute the improvement both within Greater China but also the Chinese consumer cluster largely to your company's specific initiative. Is that fair or what are you also seeing from the Chinese consumer side? more broadly in terms of macro and market stabilization, and anything you can share in terms of how different price points are doing within China and whether the aspirational consumer or there's any trading down from higher price points to more aspirational price points. Thank you very much.

Hi, Grace. I mean, I think just to clarify on the cluster, because I know people are always interested in that.

I mean, we did actually, the cluster did turn positive. You'll probably remember it was flat last quarter. The Chinese cluster turned positive. So we are seeing sequential improvement quarter on quarter. water there you know you'd expect it it was slightly behind the region because of course you are seeing this slow down in outbound tourist spend um but you know as we as we said before we're really encouraged by by local spend there um in in terms of um versus the competition you know uh you know i think traffic remains challenging but our conversion was really spectacular

in China and I think that speaks to the in China and more broadly conversion was strong and I think that speaks to the product offer and that the customers are finding more about more of what they love about Burberry in the stores and it is easier for our client advisors to fully wardrobe their customers

Great. Thank you.

Thank you. And our next question is from Peral Dadania from RBC. Please go ahead.

Thank you. Morning. So I just have one. I guess as we approach the end of the autumn-winter season, this is the first in which, you know, you guys have had full control over the way in which you've operated as well as the product range. Could you perhaps, Joshua, give us some insights into the learnings that you've had? I think you touched on certain product categories like cashmere working better than perhaps you were expecting. How are you planning and setting the business up for autumn-winter 26? And are you planning to be more aggressive in terms of the open-to-buy and the purchase order commitments as you gain confidence in the strategy delivering to plan? Thank you.

That is a terrific question. because you rightly noted that this was the first festive season that was fully impacted by the Burberry Forward strategy. Last year, we were pulling together the campaign with a product mix that hadn't necessarily been conceived with the Burberry Forward strategy. So the biggest learning is that the strategy is working, that timeless British luxury is the right brand expression, that aligning our pricing to category authority is working for us, that we have broad universal appeal and need to have good, better, best in each of our categories and that we also need to lean into our strengths of leading with outerwear and using scarves as a differentiator, but then fully wardrobing the customer. So, you know, as a merchant, you know, we're always looking at what we can do better and what we didn't get right. And so, you know, one of my favorite meetings of the year is always our festive hindsight. And we try to do that as quickly as possible after the first of the year to get together while it's all fresh in our minds. And, you know, one of the reflections is we were low on stock. in some key classifications. So Kate mentioned Kensington cashmere trenches. Hard to find in our stores today because we did not anticipate the demand. And so generally you want to keep stock in those in January and February and were very broken in sizes. Um, uh, you, you know, uh, a category like knitwear, um, you know, uh, It's not something we're famous for. You know, we heroed it in our campaigns, but we haven't invested in the cashmere knitwear in the way that we might have, knowing how successful it would be. Um, and, and of course, you know, now having, you know, this year under our belt, you never want to always look backward. You always want to look forward about what they're going to be wearing, uh, uh, next year. Um, you know, our, our, we talk about our triangle of design merchandising and, uh, product development, uh, and, you know, they're hard at work now. Um, uh, you know, uh, um, uh, taking these learnings and incorporating them into our plans. And our merchant teams have been traveling around the world. And our design team is upstairs working on the fashion show. So lots of work here and lots of learnings to build on the momentum from this quarter.

That's great. Thank you very much for the insights.

Thank you. Our next question is from Zuzana Push from UBS. Please go ahead.

Morning, Kate and Josh. Thank you for taking my questions. I just had one. Sorry, maybe it's a little tricky one because I know it's a revenue call, but I mean, hearing everything and you clearly seem to be enjoying a very strong momentum, especially on the full price front. I'm just wondering because your gross margin outlook for the year seems very conservative. It implies that basically the H2 gross margin would be much lower than H1. I guess my question is, is there anything that has changed in the business structurally? Because if I look back, let's say pre-public when life was a little bit more normal, I believe that your H2 gross margin was usually actually a little bit higher than H1 or at least as far with H1. So, yeah, I guess, you know, especially having such a strong Q3 already in the pocket, I'm just wondering if you could tell us, you know, what exactly is behind your thinking on being so conservative on the gross margin for H2? Thank you.

Yes. Hi, Susanna. I'll take that one.

I mean, I think looking across the piece and, you know, what I take from today, as we've said, you know, clearly really pleased with our revenue performance, you know, on the margin. It is definitely playing out, you know, as good as we could have hoped. So certainly we've talked a lot about margin improvement. We really are seeing that coming through as planned. You're absolutely right that in the past, yes, typically H2. would have been higher than H1. I'm sure in time we will return to that more normalized phasing. But as I talked about a lot back in November, the shape this year is still going to be a lower margin in the second half, albeit it will be, you know, you're going to see this significant improvement year on year. And, you know, we're feeling increasingly confident that we will deliver, you know, the margin uplift. at least as good as the guy did for the full year. So I think that, you know, wrapping all that up into our outlook, as I say, pleased with the top line, margin improvement coming through as planned. We are, however, given the momentum that we're seeing in the business, we're investing more year on year. And, you know, you've seen that in our marketing campaigns and therefore reiterating consensus today. But what I would say, and just to reiterate some of Josh's comments, you know, all the signals are certainly looking very positive for our longer-term success.

Thank you. But sorry, so just to clarify, but what exactly, the tariffs or what is it exactly that sort of is impacting H2 gross margin so much?

Well, you'll remember we had, you know, H1 was more around the kind of, you know, unwind of we did some significant provisioning in the first half in the prior year. And then, of course, this time last year, we were absolutely comping against that quarter where we were exiting really problematic stock. So, you know, we had the kind of one off. in a very public markdown, which we're not repeating again, this year we have reverted to a much more normalised sale period, private sale, shorter, shallower, more discreet, and therefore you are going to see that coming through in the margin. So very simply, it's exactly the same as what we took you through back in November. Excellent. Thank you.

So this now concludes our Q&A session for today. I will hand back over to Kate Perry for any closing remarks.

Thank you.

Well, we'd like to thank you all for joining us this morning and we look forward to updating you again in May on our programme.