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Burberry Beats Expectations, Takes Aim at Discounts

Burberry store in Regent Street, London | Source: Shutterstock

The company said Thursday it will reduce markdowns, a measure that may hurt second-half sales though should improve long-term profitability. The stock rose as much as 5.8 percent after first-half sales declined less than expected and Burberry said revenue returned to growth in October.

Burberry aims to upgrade its leather-goods pricing to the levels enjoyed by rivals Prada and Gucci, according to Luca Solca, an analyst at Sanford C. Bernstein. Like Prada, Burberry has also been trying to get a stronger grip on its product pricing by reducing sales to third-party retailers to reduce inventory in the market. The pandemic is putting the luxury-goods industry through one of its biggest crises yet, leading to an 88 percent decline in Burberry’s first-half earnings per share.

Wholesale revenue, which represents about a fifth of total sales, dropped 38 percent in the first half.

Chief executive Marco Gobbetti put the company on a transformation plan before the pandemic struck, seeking to elevate the quality of its products and woo millennials and younger shoppers. But Covid-19 heightened the need to shift gears, with the brand announcing in July it would consolidate its offerings around ready-to-wear, accessories and shoes as it cuts 500 jobs.

Burberry shares have lost about a quarter of their value this year, the worst performers among major European luxury-goods stocks.

While the recovery in China, South Korea and the US was evident with “strong” double-digit growth rates in the quarter ending September, Europe and Japan notably “remain impacted by the significant reduction in tourism.”

Burberry has been active in attracting tech-savvy Chinese customers. It recently opened a store in Shenzhen with Chinese web giant Tencent Holdings Ltd. that blends a physical and digital experience.

There have been renewed lockdowns in Europe’s fashion capitals. Burberry said it remains “conscious of the uncertain macro-economic environment” caused by the virus and currently more than 10 percent of its stores that are closed globally following recent lockdowns, it said.

By Angelina Rascouet.

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