Burberry launched turnaround plan as sales, profits plunge

14th Nov 2024 07:02

(Sharecast News) - Shares in Burberry surged on Thursday as the luxury goods brand launched a review of the business in an "urgent" effort to turnaround its struggling fortunes after slumping to a £80m half-year loss driven by plunging sales in its key Chinese market.

New chief executive Joshua Schulman said "Burberry forward" would target £40m in savings and focus on "reconnecting our brand with its original purpose", mainly by targeting the outerwear market. The news sent shares in the firm up 17% in London trade.

Revenues plunged 22% to £1.08bn with sales down 24% in mainland China as consumers in the world's second largest economy reined in spending, especially in the second quarter which say a 27% slump. Burberry made a £223m profit a year earlier. The dividend suspension announced earlier in the year was also kept in place.

Sales were also down 26% in South Korea and 2% in Japan as a 9% decline in the second quarter offset a 6% rise in the first three months of the financial year.

Burberry said with the key Christmas period ahead and an uncertain macroeconomic environment it was "too early to determine whether our second-half results will fully offset the first half adjusted operating loss".

Former Michael Kors boss Schulman took over in July after the company ousted Jonathan Akeroyd after just two years in the role. It also suspended dividend payments and issued a profits warning after weak global demand battered first-quarter sales.

"Newly minted CEO Joshua Schulman plans to tap into the brand's heritage to regain its footing in this category, before expanding into other areas. But it's a careful balance, and Mr Schulman won't want to make the same mistake as his predecessors of skewing Burberry's offering to a narrow base of luxury customers at the expense of a loyal fanbase," said Hargreaves Lansdown analyst Aarin Chiekrie.

"Back to recent performance and it was a painful read for investors. Cost cuts are underway to try and stem some of the financial bleeding, with £25mn of excess material set to be trimmed from the expense line this year. But with no full-year guidance given, it's unclear whether it can return to profit in time."

Reporting by Frank Prenesti for Sharecast.com