Burberry Group Plc just pulled a rabbit out of its vintage check hat. The British luxury brand – which is in the middle of a business turnaround – reported same-store sales growth of 4% in the three months to June 29, double what was expected by analysts. The performance is all the more notable given the disruption to its Hong Kong stores from the city’s recent protests.
Under creative director Riccardo Tisci, the company is trying to move its handbags and clothes up-market to compete with the likes of Louis Vuitton and Christian Dior. Tisci’s new monogram, based on the initials of the founder Thomas Burberry, is proving a hit with Chinese millennials. Having the Burberry name emblazoned on bags and sweatshirts is winning the hearts of young Asian shoppers, as are the limited edition “drops” of products sold via Instagram and China’s WeChat.
Tisci’s collection now makes up about half of the Burberry range and its sales rose by a “strong double-digit percentage.” The shares jumped more than 10% on Tuesday after the sales update was published, taking the increase since the end of May to 30%. Sterling’s weakness is helping too.
Investors are clearly betting that Tisci’s creations can do the same thing for Burberry that Gucci’s recent success did for the French luxury group Kering SA. And with more of his collection due in the next nine months, there are some grounds for optimism. Burberry estimates that three-quarters of its product range will be from the new designer by March next year.
But Burberry isn’t free of its recent travails quite yet. It still has a lot of old stock hanging around and a U.S. distribution network that needs refreshing. As a result, the company maintained its outlook for flat revenue and operating profit margin for this financial year.
Keeping a lid on expectations at this stage is wise because there’s scope for setbacks. While Chinese shoppers have led the Burberry revival, sales to them now account for about 40% of the group total. That means any trade war-related consumer slowdown might hurt demand.
Burberry also needs to better exploit the Tisci buzz. It still doesn’t seem to have gained the traction that Gucci did in the early stages of its recovery, when everyone from Beyonce to One Direction’s Harry Styles sported the label.
There’s a lot riding on this turnaround. If it works, Burberry could take a leading role in fashion industry consolidation; it had 837 million pounds ($1 billion) of net cash to play with at the end of March. You could see an attempt to create a British luxury empire to rival those being built in the U.S. by Capri Holdings Ltd. and Tapestry Inc.
If the recovery stalls, though, that cash balance will look mightily attractive to other industry predators. Burberry may still end up in someone else’s fashion collection.
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Andrea Felsted is a Bloomberg Opinion columnist covering the consumer and retail industries. She previously worked at the Financial Times.
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