Burberry (BURBY, Financial) announced a major strategic overhaul and a £40 million cost-saving initiative following a challenging financial performance with a 22% drop in revenue. This news led to a remarkable 22% surge in its stock price, marking the largest single-day gain in the company's history.
The newly appointed CEO, Joshua Schulman, joined Burberry in July from Michael Kors. He emphasized the urgent need to stabilize the business and steer it towards sustainable growth. Schulman noted that Burberry's recent strategy of elevating brand status and increasing prices alienated customers, particularly impacting demand from Chinese consumers.
Burberry reported a 22% decline in revenue for the first half of the fiscal year, totaling £1.09 billion, slightly exceeding analysts' expectations of £1.08 billion. The company's adjusted operating loss for the period was £41 million, better than the forecasted £45 million, compared to an operating profit of £223 million in the previous year. Net loss was £8 million, down from a net profit of £219 million a year earlier.
Schulman's strategy includes introducing more affordable "entry-level" products and focusing on Burberry's core strengths, such as outerwear, which he believes holds strong pricing power compared to weaker categories like handbags. He emphasized maintaining a high-quality brand image rather than shifting to the lower-end market.
The announcement of Burberry's restructuring plan led to a significant stock price boost, influencing other luxury brands like LVMH and Hermès to see modest gains. Analysts are optimistic about Burberry's transformation, viewing it as a "turning point" for the brand. They anticipate noticeable changes in product design, pricing strategy, and distribution, while maintaining Burberry's global luxury brand positioning.
Despite recent challenges, the restructuring plans have instilled confidence among analysts and investors, signaling potential recovery and growth for Burberry in a slowing luxury market.
