For 18 months Burberry hasn’t been able to put a number on how much Riccardo Tisci is worth to the business (Ashley Armstrong writes). Certainly not its new chief designer’s pay packet — how gauche to ask. Instead, the luxury brand is mildly obsessed with Mr Tisci’s “lucky number” — 17. His catwalk collections start on the 17th of the month and on the 17th hour of the day. While it waits for the Italian’s designs to filter down from the catwalk to its boutiques, the trenchcoat maker has had to sell its strategy on a much more tenuous promise of Mr Tisci’s “brand heat”.
Burberry was founded in 1856 by Thomas Burberry, a draper who invented the gabardine waterproof material still used in its coats. A member of the FTSE 100, it has a market value of £9.3 billion and employs 10,000 staff.
After stellar growth that followed its listing in 2002, when it was spun off from Great Universal Stores, success started to unravel when Angela Ahrendts, its boss, departed for Apple. Her exit left Christopher Bailey, the company’s renowned designer, as chief executive, with rocky results. When ex-Céline boss Marco Gobbetti arrived to take on the chief role in July 2017, it took only three months for Mr Bailey, 48, to decide to “transition from Burberry”.
Mr Gobbetti, 59, has decided to move the business upmarket to take on the likes of LVMH and Kering. He is planning to shut 38 stores globally and to pull out of dated American department stores that no longer attract luxury customers. Mr Tisci, 44, plays a crucial role in his plan to push the brand into leather goods, where Burberry can command £2,000 for a handbag.
Yesterday investors had a glimpse of how customers were responding to the Italian’s new designs and a new TB logo on its bags. The early signs are promising. Only half of the products in Burberry’s best stores are Tisci-designed while the brand clears out ranges created by his predecessors, yet the company said that the ranges had achieved “double-digit” growth during the first quarter to the end of June. That translates into a 4 per cent rise in like-for-like sales for the 13 weeks — well ahead of the 2 per cent lift expected. Crucially, Burberry’s Asia Pacific sales — which accounts for 40 per cent of the total — grew by a “high-single-digit percentage”.
Investors are still hoping that Mr Tisci delivers the same kind of brand revival as Alessandro Michele has performed at Gucci, increasing sales by 35 per cent since arriving three years ago. Gucci’s owner Kering, which also owns Yves Saint Laurent, trades on a multiple of almost 25 times, while Burberry trades at 24.3 times.
Yet while Burberry is keen to attribute the quarter’s sales boost to the “Tisci effect”, it cautions that the second half of the year may experience a slowdown in sales as a result of “reduced markdown inventory.” This raises questions about whether the recent sales boost was driven in part by discounting.
The promising update lifted Burberry’s shares by 286½p, or 14.4 per cent, to £22.77 yesterday. The company has asked investors to be patient and said that it would spend the next two years “re-energising” the business with broadly stable sales and earnings. It will take another year for its stores to be totally Tisci-designed and it expects to start churning out growth only from 2021 onwards.
The company’s revival has a huge amount of “key man risk” attached to it. Tempus would advise waiting for further evidence before betting that Burberry is back in fashion.
ADVICE Hold
WHY A promising response to the new designer’s ranges, but there are concerns about whether the sales boost was driven by discounting
Fulham Shore
It would be wrong to suggest that Fulham Shore, the restaurant group behind the Franco Manca and Real Greek brands, has sailed serenely through the headwinds that have buffeted the casual dining sector over the past couple of years (Dominic Walsh writes). It suffered two profit warnings in September 2017 and March 2018 and briefly scaled back its opening programme.
Yet those twin setbacks are firmly behind it and, in an industry that has splintered into winners and losers, yesterday’s full-year results suggest that Fulham Shore is now firmly established among the former. In figures that beat expectations, revenue in the year to the end of March jumped by 17 per cent to £64 million, with underlying earnings up 5.4 per cent to £7.8 million. The group swung from a pre-tax loss of £110,000 to a profit of £1.4 million and cut its net debt from £12 million to £9.4 million. It does not provide like-for-like sales, but Allenby Capital, its house broker, reckons that they grew by 1.7 per cent at Franco Manca and 0.1 per cent at the Real Greek.
The group, founded in 2012 by David Page, its chairman, opened four Franco Manca pizzerias and closed one during the year. It has since opened three more Franco Mancas lifting its total estate to 47 Franco Mancas and 16 Real Greeks. It has two more pizzerias under construction in Leeds and Edinburgh, has another committed site in Manchester and is homing in on two more Real Greek sites.
Mr Page, 67, reckons that the success of its Franco Manca brand is down to a simple formula: a limited menu of sourdough pizzas, value for money, friendly service and pared-back decor. It also generally has targeted smaller, slightly off-pitch sites, enabling it to avoid punitive high street rents. However, falling demand for retail and restaurant space amid business failures and the shift to digital shopping mean that landlords are having to cut rents to let properties.
In normal circumstances, Fulham Shore might have been expected to sell out to private equity, but with that prospect now distant, the company says that it will “consider a dividend policy over the current financial year”.
ADVICE Buy
WHY Despite a 12 per cent rise, the shares have farther to go
