Revenue Radar: Burberry posts £41m loss as new CEO unveils heritage-focused reset

Burberry, the British luxury fashion house known for its iconic trench coats and check pattern, has reported its first operating loss in recent years as its new CEO unveils a major strategic reset. The company, which has struggled with brand positioning and declining sales across key markets, is now pivoting back to its heritage roots under the leadership of Joshua Schulman, who joined in July 2024.

On November 14, Burberry released its interim results, showcasing the scale of challenges facing the 168-year-old brand while outlining its new “Burberry Forward” strategy designed to reignite growth and return the company to profitability.

Read Burberry’s full earnings transcript here. 

Key Financial Metrics:

• Revenue: £1.086 billion
• Adjusted operating loss: £41 million
• Gross margin: 63.4%
• Free cash outflow: £184 million
• Comparable store sales: -20%

Burberry’s first-half performance for the 26 weeks ended September 28, 2024, revealed significant challenges, with the luxury retailer reporting its first operating loss in recent years. The company saw revenue decline by 20% at constant exchange rates, reaching £1.086 billion, while posting an adjusted operating loss of £41 million – a stark contrast to the £223 million profit recorded in the same period last year.

The company’s gross margin suffered a considerable decline of 640 basis points to 63.4%, impacted by increased product costs, inventory provisioning, and actions taken to address inventory buildup. These inventory actions, according to CFO Kate Ferry, will “accelerate into the second half, resulting in gross margin in half two being lower than the first half.”

Regional performance painted a challenging picture across all markets. Asia Pacific, the company’s largest region, recorded a 25% decline, with mainland China down 24% and South Korea falling 26%. The EMEIA region (Europe, Middle East, India, and Africa) fell 13%, while Americas declined 21%.

New CEO Joshua Schulman, who joined in July, acknowledged these challenges directly: “We are operating in a difficult market. However, our underperformance is also a consequence of decisions we have taken. And it stems from an inconsistent brand execution and a lack of focus on our core outerwear category and our core customer segments.”

The company experienced particular pressure in its wholesale business, which declined 29%, with management now expecting a steeper decline of approximately 35% for the full fiscal year 2025. The only bright spot came from the licensing business, which grew by 5%, supported by continued strength in fragrance.

Free cash outflow reached £184 million, primarily driven by operating performance and working capital outflow of £123 million due to inventory buildup and seasonal effects. The company has suspended dividend payments for FY25 to maintain balance sheet strength and enable investment in future growth.

Stock performance

Burberry’s performance has prompted significant actions to protect its balance sheet. The company closed the period with net debt of £278 million, or £1.4 billion after adding £1.1 billion of lease liabilities. The net debt to adjusted EBITDA ratio stood at 2.4 times, with management expecting leverage to be slightly higher at year-end.

To strengthen its capital structure, Burberry issued a new £300 million bond in June 2024. While the company remains comfortable with its liquidity and headroom during this challenging period, CFO Kate Ferry emphasized they are “focused on returning leverage to a more normalised level organically through the near-term actions we’re taking to rebuild profitability.”

In terms of market outlook, Ferry noted caution regarding the near term: “With our all-important festive trading period ahead and an uncertain macro environment, it is too early to determine whether our second-half results will fully offset the first-half operating loss.”

Analysts’ reactions during the earnings call reflected mixed sentiments about the company’s strategic reset. Major financial institutions including BNP Paribas, Morgan Stanley, UBS, HSBC, Goldman Sachs, Citi, Stifel, and Barclays participated in the Q&A session, focusing particularly on the company’s pricing strategy and potential for recovery.

Strategic changes in motion

Burberry has unveiled “Burberry Forward,” a comprehensive strategic plan under new CEO Joshua Schulman to reignite brand desire and drive long-term value creation. The strategy marks a significant pivot back to the company’s heritage roots after what Schulman describes as moving “too far from our core DNA.”

“Burberry is an extraordinary luxury brand,” Schulman stated during the earnings call. “Quintessentially British, equal parts heritage and innovation, with a unique creative and commercial alchemy at its core. Burberry’s original purpose, to design clothing to protect people from the weather, is more relevant than ever.”

The strategic reset focuses on four key pillars:

“We are acting with urgency to course correct,” Schulman emphasized. “While this is a business with long lead times, I have no doubt that Burberry has all of the attributes to return to sustainable, profitable growth.”

Joining the competition

Burberry operates in a challenging luxury market environment where consumer preferences and spending patterns have shifted significantly. As Schulman noted in the earnings call: “In our pivot to a modern British luxury aesthetic, we over-indexed on modern at the exclusion of our heritage in our brand expression.”

The company’s recent market analysis revealed critical insights about its customer segmentation. “As a luxury brand with broad universal appeal, it is paramount that we speak to different customer archetypes,” Schulman explained. He identified several key customer segments:

• The opinionated: sophisticated and fashion-forward
• The investor: high-spending, craving quality and craftsmanship
• The conservative: quieter, lower spending
• The hedonist: appreciates brands and seeks high branding
• The aspiring: lower spending but important for the luxury sector

A key challenge identified was that Burberry had focused too narrowly on the “opinionated” customer segment in recent years. While successful in attracting this group, Schulman acknowledged this was “one of the smaller pools of customers, and not big enough alone to sustain a multi-billion-pound business.”

In terms of category authority, Burberry maintains a strong position in outerwear and scarves, which continued to outperform other categories even during this challenging period. The company’s heritage in these categories provides a competitive advantage, with Schulman noting, “We have the most opportunity where we have the most authenticity.”

The wholesale landscape shows potential for recovery, with major retail partners seeing opportunity for the brand.

“I’ve met with most of our largest partners in America and Europe, and they see a void in the market that Burberry can uniquely fill,” Schulman stated, adding that these partners are “excited to have a Burberry back for their customers.”

Is the future Burberry?

As Burberry navigates through this transitional period, management has provided a cautious but focused outlook for the future. While near-term challenges persist, the company has outlined clear targets and initiatives to restore profitability and growth.

For FY25, Burberry expects:

• Wholesale revenue to decline by approximately 35%
• Retail space to remain broadly flat
• Capital expenditure of around £150 million
• Currency headwind of approximately £70 million on revenue and £20 million on operating profit

In terms of immediate actions, the company is implementing a significant cost reduction program. “We’ll deliver around 25 million in savings, which annualise at around 40 million from FY26,” stated CFO Kate Ferry. This is part of a wider cost program, with further updates expected in due course.

The company has suspended dividend payments for FY25 to maintain balance sheet strength and enable investment in long-term growth. Management is confident in the company’s liquidity and headroom, despite expectations that leverage will be slightly higher at year-end.

Looking further ahead, Burberry has set ambitious medium-term targets. “We are confident we can get back to generating three billion pounds of revenue over time while building high teens operating margins and driving strong cash generation,” Schulman stated. He emphasized that after several months in the role, he is “more confident than ever that Burberry’s best days are ahead.”

However, management acknowledges that the path forward requires careful execution. “While this is a business with long lead times,” Schulman noted, “I am absolutely confident that they [our challenges] are fixable.” The company’s focus will remain on:

• Rebuilding gross margin
• Reducing operating expenses
• Taking a disciplined approach to capital allocation
• Maintaining balance sheet resilience

The success of these initiatives will largely depend on the company’s ability to reconnect with its core customer base while maintaining its luxury positioning. As Schulman concluded, “Burberry has always been about moving forward… We will continue to inspire and excite our customers.”

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