Burberry Restructuring Costs Hit Pretax Profit

The U.K. luxury goods company is pursuing a turnaround plan focused on cutting $124 million in costs and streamlining its product range.
Matthew HellerNovember 10, 2016
Burberry Restructuring Costs Hit Pretax Profit

Burberry, which has been attempting a turnaround after a year of underperformance, reported a 34% fall in first-half pre-tax profits, reflecting costs from its retrenchment.

The British luxury goods company said Wednesday that pre-tax profits declined from 154.7 million pounds ($192.2 million) to 102 million pounds ($126.7 million) in the six months to Sept. 30 after adjusting for items including a 26.1 million pound ($32.4 million) writedown on the value of Burberry’s beauty business.

Excluding the extra charges, adjusted pre-tax profits were slightly ahead of analysts’ expectations, falling by 24% to 146 million pounds ($181.4 million).

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As part of a turnaround plan announced in May, Burberry, best-known for its signature trenchcoat and scarves, has been cutting costs and streamlining its product range. Total operating expenses were 6% higher in the first half of the year at 56.2% of sales, but down 1% on an underlying basis.

Burberry said it was on track to deliver 20 million pounds ($24.8 million) of cost cuts this year, as part of a three-year, 100 million pound ($124.2 million) savings drive.

“In May we outlined plans to evolve how we work as a business and to drive Burberry’s future growth in a rapidly-changing luxury environment,” CEO Christopher Bailey said Wednesday in a news release. “Since then, we have made good early progress towards realizing the significant opportunities ahead of us.”

But Nivindya Sharma, an analyst at Verdict Retail, told The Telegraph that the North American market continues to be a “particular bugbear” for Burberry due to the continuing struggle of department stores in the region.

In the first six months of 2016, the beauty division’s wholesale revenues fell 20% as Burberry held back products from U.S. stores.

Thomas Chauvet, analyst at Citi, said Burberry would benefit from the tighter cost control but the outlook on profit margins in 2018 was still very unclear. “We see political risks as a potential source of disruption to luxury demand in some of the world’s key luxury markets” including the U.S., he told The Financial Times.