LONDON, United Kingdom — Burberry Group Plc reported a second straight drop in annual earnings and announced plans to save £100 million ($144 million) a year as demand for the UK company’s luxury attire slows from New York to Nanjing.
Adjusted pretax profit fell 10 percent to £421 million ($608 million), London-based Burberry said Wednesday, broadly meeting estimates. The cost-saving goal will be achieved by 2019, it said, adding that 2017 earnings are likely to be near the bottom of the range of estimates.
With some analysts and investors questioning whether Chief Executive Officer Christopher Bailey can lead the company effectively while doubling up as chief creative officer, the plan should go some way to easing concerns. Pressure has been increasing on Bailey after Burberry predicted last month that earnings this year would be at the low end of estimates, or about 405 million pounds.
“Christopher Bailey looked to be flourishing in the demands of chief executive officer and chief creative officer last year, however the story looks somewhat different this year,” Paul Thomas, an analyst at consultant Retail Remedy, said by e-mail. “Creating new demand has to be at the core of Burberry’s future strategy.”
The shares fell 2.6 percent to 1,113 pence at 8:08 a.m. in London.
Burberry also announced a share buyback program of as much as £150 million, starting this year, and said it will hold its dividend per share for fiscal 2017 at least in line with 2016.
“All eyes were on the productivity program, which seems material and ambitious,” said Luca Solca, an analyst at Exane BNP Paribas. “The announced share buyback program is a positive, as well as the commitment to a progressive dividend policy.”
Burberry has been particularly affected by sliding demand in Hong Kong as it only has a small number of stores in Japan, where Chinese shoppers have shifted spending to take advantage of a weak yen. Sales in Burberry’s Japanese stores more than doubled last year, though the country accounts for little more than two percent of overall sales.
“The external environment has remained challenging and underlying cost inflation pressures persist,” Burberry said in the statement. The company now expects the benefit from exchange rates this year to be about £10 million less than it predicted in April. It also doubled a performance-related pay charge to £40 million.
Half the savings will come from changes in the way Burberry works, by reducing complexity, simplifying processes and eliminating duplication. About £20 million of costs will be taken out this year, the company said. One-time charges associated with the plan should total about £60 million over the next two years, Burberry said.
The trenchcoat maker expects global luxury demand to remain subdued, growing an average low single-digit percentage a year. “The majority of sector growth is expected to come from new and existing Chinese consumers, both when traveling and, increasingly, at home,” Burberry said.
By Andrew Roberts; editors: Matthew Boyle and Paul Jarvis.