Burberry showed promise of recovering from the struggling luxury market. But now, Britain’s marquee trench coat maker will have to lick its wounds a little longer amid the slow burn of its turnaround plan.
On Wednesday, the London-based company reported a 12% decline in sales in the year to March 29, marginally higher than analyst expectations of 13%. Meanwhile, its operating profit was £26 million for the same period against £418 million the previous fiscal year, reflecting the dire state of its business.
“While we are operating against a difficult macroeconomic backdrop and are still in the early stages of our turnaround, I am more optimistic than ever that Burberry’s best days are ahead and that we will deliver sustainable profitable growth over time,” CEO Joshua Schulman said in a statement.
Burberry is a few months into its cost-savings drive announced in November, aimed at “course correcting” and improving the brand’s performance. The primary strategy of the turnaround plan has been to lean more into Burberry’s forte, which includes outerwear like trench coats and scarves.
As the company announced its full-year earnings, Burberry also said it plans to slash 18% of its workforce, or 1,700 roles, to streamline costs.
The British company said the so-called “Burberry Forward” plan was already beginning to recharge the brand, although a weak first half of the year dragged its overall performance lower.
By the 2027 financial year, Burberry expects to save £60 million.
No dearth of challenges
While Burberry’s better-than-expected results inject some hope into its performance, the company faces numerous challenges—some shared by other luxury players and others unique.
Analysts have highlighted the indirect impact of U.S. tariff tensions on consumer confidence and appetite for luxury goods. The broader luxury sector has been concerned about flagging consumer confidence over the last two years, which has only recently shown signs of rebounding.
Burberry’s business in Asia Pacific, which contributes 44% of its revenue, has been struggling from the luxury slowdown. Meanwhile, the U.S. clocked in a stronger performance in the third quarter, when investors seemed encouraged that luxury may have finally turned a corner. The fourth quarter, although better than expected, saw sales in the Americas contract by 4%.
For its part, Burberry’s strategy of doubling down on core-product campaigns could help strengthen the brand’s allure once again, but it may not be able to single-handedly lift sales.
“Burberry’s signature trench coat, while an undisputed icon, poses a business challenge. As a lifetime product, it naturally limits the frequency of repeat purchases—unlike trend-driven items that bring customers back season after season,” Yanmei Tang, an analyst at Third Bridge, wrote in a note Wednesday.
Separately, Burberry’s “elevated” pricing strategy also backfired at a time when shoppers were tightening their purse strings.
Schulman admitted the brand had strayed from its path and become “inconsistent” with what it stood for. Not long after Schulman took over in July, the company lost its spot on the U.K.’s benchmark FTSE 100 Index.
The turnaround plan may take a while to reap results, but Deutsche Bank analysts led by Adam Cochrane wrote that they “like the Burberry story” and see Burberry “showing further progress.”
This story was originally featured on Fortune.com
