Burberry returns to growth as turnaround effort starts to bear fruit

By Helen Reid and Yadarisa Shabong

LONDON (Reuters) -Burberry returned to growth in the second quarter, the British luxury brand reported on Thursday, as turnaround measures started to bear fruit and its China business showed signs of recovery. 

Burberry reported a 2% rise in second-quarter comparable store sales, its first quarter of growth in two years, in a sign shoppers are responding well to CEO Joshua Schulman's strategy of refocusing the 169-year-old trench coat maker on outerwear and scarves and promoting an accessible British aesthetic.

Analysts had forecast a 1% rise in comparable store sales, following seven quarters of decline, according to a company-compiled poll. Shares in Burberry rose nearly 6% by 0910 GMT.

"With our timeless British luxury brand expression and an improved product offer, our brand has become more desirable," Schulman said in a call with journalists, adding that the brand has attracted new customers and welcomed back old ones.

'CLEAR TREND FOR IMPROVEMENT'

Schulman has tightened the link between creative director Daniel Lee's design decisions and commercial teams, aiming to restore the brand's core identity after straying from recognisable codes and pushing up prices on items like bags and shoes for which Burberry is not well known. 

"For the last ten years, they (Burberry) tried to follow the playbook of other brands out there, they tried to do high fashion, they tried to do leather goods which is extremely competitive... now they're trying to reconnect more with what the brand is really about," Morningstar analyst Jelena Sokolova told Reuters.

"Now there is a clear trend for improvement," she added.

CHINESE CUSTOMERS RETURNING

Burberry said comparable sales in China returned to growth for the first time in more than a year, rising 3%, a sign its new marketing campaigns are stimulating demand from Chinese luxury buyers, who have cut back on spending in recent years.

"In China specifically, we're really excited about what we're seeing there," Schulman said, adding that Burberry has seen 10% growth in returning customers in the country.

Adjusted operating profit for the six months ended September 27 came in at 19 million pounds ($25.5 million), beating average market expectations of 12 million pounds. Burberry had reported a loss of 41 million pounds in the same period last year.

Burberry's shares are up more than 30% since the start of the year as investors have welcomed Schulman's marketing overhaul and cost cuts, and as the broader luxury sector also began to show signs of recovery. 

A key test of Schulman's strategy will come this quarter, with holiday shopping crucial for Burberry. The brand is betting on "scarf bars" in stores to showcase cashmere scarves priced between $450 to $1,150.

Schulman said customers were "responding strongly" to its autumn and winter collections, with a significant increase in sell-through rate compared to last year.

Burberry's revenues were 1.032 billion pounds ($1.39 billion) for its first half ending September 27, down 5% from the same period last year.

($1 = 0.7451 pounds)

(Reporting by Yadarisa Shabong in Bengaluru; Editing by Jan Harvey and Elaine Hardcastle)