The recovery of the Chinese market boosts Burberry's Q2 performance to profitability, with sales achieving quarterly growth for the first time in two years | Earnings Report Insights
Burberry's comparable store sales in the second fiscal quarter increased by 2% year-on-year, ending a seven-quarter decline. Sales in regions including China grew by 3% in the past three months. The company reported a profit of £19 million in the first half of the year, indicating that confidence in CEO's strategy of returning to classic coats and streamlining costs is taking effect, boosting market confidence
Under the bold reforms of CEO Joshua Schulman, the revival plan of the British luxury brand Burberry is beginning to show results. Thanks to the recovery of key demand in the Chinese market, the company's performance has reached a turning point after a long decline, with core sales indicators experiencing growth for the first time in nearly two years and successfully returning to profitability.
According to Burberry's financial report released on Thursday, in the second fiscal quarter ending in September, the company's comparable store sales increased by 2% year-on-year, exceeding market expectations. This figure ended a previous streak of seven consecutive quarters of decline. Meanwhile, the company's adjusted operating profit for the first half of the year reached £19 million (approximately $25 million), marking a significant turnaround from a loss of £41 million in the same period last year.
The market reacted enthusiastically to this positive signal. The financial report showed that sales in regions including China grew by 3% in the last three months, reversing a 5% decline in the previous quarter, marking the first recovery in the Chinese market in over a year. This performance is seen as important evidence of the rising willingness of Chinese luxury consumers to spend, and it has injected confidence into Burberry's stock price, which has risen 28% so far this year.
"We are beginning to see customers return to the brands they love," CEO Joshua Schulman stated in a press release.
First Quarterly Growth in Two Years, Recovery in the Chinese Market as a Key Engine
Burberry's latest performance marks a potential turning point for its business. The 2% increase in comparable store sales in the second fiscal quarter not only exceeded the average analyst expectation of 1%, but more importantly, it broke the brand's seven-quarter sales decline cycle.
In terms of profitability, the company also delivered better-than-expected results. The adjusted operating profit of £19 million for the first half far exceeded the market average expectation of £12 million. Investor confidence has been reflected in the stock price, and in addition to the 28% increase year-to-date, Burberry also re-entered the FTSE 100 index in September this year, having previously been removed from the benchmark index in 2024.
The strong recovery of the Chinese market is the core driving force behind Burberry's performance rebound. The latest fiscal quarter saw a 3% growth in sales in regions including China, marking the first increase in comparable sales in the Chinese market in over a year.
This shift indicates that Burberry's new marketing campaigns are rekindling demand among Chinese luxury buyers. Additionally, the financial report specifically mentioned that the outerwear category, as the brand's iconic product, "performed exceptionally well" across all regions, demonstrating the strong appeal of its core product line.
New Leadership: Focusing on Classics and Cost Reduction
Since taking over as CEO more than a year ago, Joshua Schulman has initiated a series of strategic adjustments aimed at reshaping brand appeal and restoring profitability. His core strategy is to bring Burberry back to its brand roots, refocusing on outerwear products with distinct British traditional marks, such as trench coats and Scottish check scarves.
This strategy sharply contrasts with the previous management's approach of pushing the brand into the expensive handbag sector, which did not gain widespread consumer acceptance. To align with the strategic transformation, Schulman has also focused on optimizing store displays to better showcase core products, thereby boosting sales.
Meanwhile, the company has implemented strict cost control measures. Burberry announced earlier this year plans to cut about one-fifth of its workforce to streamline operations. Financial reports indicate that the restructuring costs related to the layoffs amounted to £37 million in the first half of the year.
Citigroup analyst Thomas Chauvet wrote in a report following the earnings release:
“All metrics have been met, and execution is on track. We believe Burberry's strategic plan is robust. While patience is still required, the potential rewards outweigh the risks.”
As one of the last luxury companies to release quarterly results, Burberry's data adds new evidence of a recovery in industry demand. Next, Cartier's parent company, Richemont, will release its first-half results on Friday, which will provide further reference for industry trends
