Burberry Group plc (BRBY) Earnings Call Transcript & Summary

Good morning, and welcome to the Burberry Interims 2023 presentation. My name is Elliot, and I'll be coordinating the call today. [Operator Instructions] I'd now like to hand over to Burberry's Chief Executive Officer, Jonathan Akeroyd, to begin. Jonathan, please go ahead when you're ready.

Good morning. Thank you for joining us today for our interim half year results presentation. In terms of the agenda for today, I'll start with some brief remarks on our performance in the half, then provide an update on the business, then hand over to Kate to update you on our financial results, and we'll take your questions at the end. . This time last year, I shared our strategy for the next phase. Since then, we are focused on execution. There is a tremendous amount of energy and excitement across the business. While we're still in the early stages of executing our plan, I'm proud of the progress we have made. I'm particularly pleased with what we've achieved in the past 6 months. We've delivered solid financial results. Retail revenue was up 10% on a comparable basis, and this was driven by good performance in leather goods and outerwear. And positive momentum in EMEA, Japan and South Asia Pacific driven by tourism and accelerating growth of Chinese customers globally. We have made significant progress across all areas of our strategic plan. We've seen a positive early response to our brand identity and collections. As you have noted in this morning's announcement, the slowdown in luxury demand globally is having an impact on current trading. If the weaker demand continues, we are unlikely to achieve our previously stated revenue guidance for FY '24, but we remain confident in our brand and strategy, and we are committed to achieving our medium- and longer-term goals. Modern British luxury is our vision for Burberry's next phase. This is about leveraging our heritage and Britishness while bringing a more modern contemporary feeling to our brand. Our strategy is anchored around brand, product and distribution and supported by a sharper focus on operations, execution and efficiency. As I mentioned, while we're still in the early stages of implementation, the pace of change across the business has been impressive. In terms of highlights over the last 6 months, starting with brand, in July, we unveiled our Winter 23 campaign showcasing our new offer with a distinctive visual language that celebrated our new and enduring brand codes and place key product category center stage. We have seen a lot of interest from fashion editors globally. This has translated into higher volumes of editorials with more than 2x greater reach versus Winter '22. We continue to focus on communicating a more coherent brand story with a brand aesthetic that is recognizably Burberry. For this campaign, we took new codes from the Winter 23 collection and applied them consistently across our customer touch points. As you can see here with our distinctive rose flags on Bond Street in our store windows and with key themes from the campaign incorporated into client experiences. And we ensure product and brand storytelling reached a broader orderance than ever before through a large program of out-of-home activations, pop-ups and pop-ins. We also refreshed the burberry.com website with a new look and feel aligned to our brand identity. The new site went live with the Winter 23 product launch. To complement the launch, we amplified our visibility with a series of city takeovers in high-impact locations. Burberry Street started in London in September and included a takeover of Bond Street Tube station during London Fashion Week. London's iconic black cabs being wrapped in Rose print and immersive experiences anchored in Britishness, including a takeover of Norman's Cafe in North London. Burberry Streets then traveled to Seoul where we took over the vibrant Seongsu area and then on to Shanghai. We are very pleased with the response. These activations helped drive our highest level of brand clarity in the last 3 years as well as the continued growth in consumers who associate Burberry with Britishness and heritage. Our new brand expression aesthetic are resonating well with our top clients who have grown double digit in both number and revenue versus last year. This positive momentum is also reflected in external industry rankings, and we plan to build on this. Daniel evolved his creative expression for Burberry during London Fashion Week in September. The Summer 24 show held in a custom tent in North London continued to build on our heritage of the outdoors, reimagining the trench for the season, whilst also embracing new codes types of the British Summer. It was well attended by high-profile talent from the world of music, creative arts and sports that helped amplify our presence on social media. The response to the show has been highly positive. Global reach from press coverage doubled versus Winter 23 with key editors praising Daniel's focus on our British heritage and marriage of the aesthetic and environment. We also saw strong engagement on our social channels. Looking ahead, we will continue to strengthen our brand storytelling and connection with Britishness, building on the progress we have made so far. Customer recruitment is a key area of focus as we continue to engage broader consumer audiences and play more family in the luxury space. We will leverage our new product offer and make it much more visible and desirable putting a spotlight on hero products, and we will strengthen the relationship with our customers with richer, more personalized and dynamic experiences. To support this, we will continue to invest strategically to enhance our brand. We have set a clear ambition to evolve our customer base with clear targets across all key dimensions. In line with our strategy, our goal is to grow the share of women's customers while maintaining strong traction with men's, leverage our unique heritage and creativity to engage with the younger audience, deepen the relationship and grow our top-tier client and focus on aggressively growing our customer base and deliver a more personalized customer experience, driving improvements in repurchase rate. I will update you regularly on our progress towards these targets. In terms of product, we believe Burberry is a brand that can play across all categories. In the last 6 months, I'm pleased with the progress we have made, particularly in leather goods and outerwear. In leather goods, sales were up 8% versus last year, driven by double-digit growth in bags. This was supported by ongoing momentum with our iconic offer and new shapes introduced as part of the Winter 23 collection. In outerwear, sales were up 21% versus last year, driven by sustained outperformance of heritage rainwear. In parallel, we continue to expand and evolve ready-to-wear and starting with Winter 23 collection we introduced a more complete shoe offering. In fact, the vintage check maintained its position as our top-selling women's line. I'm pleased to say that the new shapes we launched in September are working alongside our existing offer. Daniel has a unique strength in accessories, and we are already seeing some of these new shapes gaining traction with our customers. The Knight bag appears in the top 10 performing product categories from the collection across all regions for both new and repeat customers. The trench tote is also resonating appealing to both male and female audiences and is already on reorder showing very encouraging sales results. In recent weeks, we have seen good visibility with celebrities and KOLs wearing the night bag. We are confident this we're an important pillar for us in the category. In outerwear, heritage rainwear continues to perform strongly with high double-digit growth across men's and women's. We celebrated our heritage rainwear with an impactful campaign earlier in the year before the new product launch. This focused approach has delivered consistently good results for the category since. Additionally, an early read on Winter 23 outwear indicates the new offer is resonating well with repeat customers as well as attracting new customers to the brand. I mentioned last year's shoes are a key opportunity for us as we've been underpenetrated in this category. I'm delighted that in a short space of time, we now have a much more complete offer across all functions. This broader share offer complements our ready-to-wear collections and gives us the opportunity to offer our clients complete outfits. We also more recently partnered with Tricker's bringing together 2 iconic British brands. We will continue to build this category. We supported the launch of Winter 23 with a high level of investment in new products across categories. This enabled us to achieve broader distribution and higher visibility in all doors compared to only 25% for our winter collection last year. As a result, our stores look considerably more animated and the new offer complements our existing core product. While it is still early to have an in-depth read on commercial performance, early indicators are encouraging. We have a much more fashion four customer buying into the collection. A higher share of sales for the runway looks a significant improvement in share of transactions with more than 1 product purchased, indicating that customers are buying more into the complete outfit and look. And we've built on this with Summer 24, evolving our aesthetic and codes across leather goods, shoes and ready-to-wear. In addition, our licensing business showed excellent performance in the half, up 44% at constant exchange rates, driven by beauty with the successful launch of the Burberry Goddess fragrance. Looking ahead, we will focus on accelerating the visibility and desirability of our accessories business by hearing our new brand pillars and developing the offer, continuing to build the shoe offer and reenergizing soft, protecting our iconic outwear category and reanimating rainwear. Completing our assortment in women's ready-to-wear, expanding underrepresented categories and evolving the core commercial offer in line with the new brand aesthetic. In terms of distribution, in the first half, we have seen sustained growth across EMEA and Asia Pacific, supported by a gradual recovery in Chinese tourism. With respect to our retail network, I'm proud of what we have accomplished. We have continued the rollout of our store refurbishment plan, and we are on track to meet our goal of more than 50% of our full-price stores refurbished by year-end. We've invested in several activations across our retail footprint and with wholesale partners to celebrate the launch of Winter 23. Across all stores, we continue to see improvements in store productivity, which grew double digit in the half. As I mentioned earlier, we also refreshed our website in line with the new brand aesthetic and improved the customer journey. EMEA and Asia performance was solid across the half, albeit with a slowdown in the second quarter. Growth was primarily driven by the rebound of tourism with greatest contribution from Chinese customers spending, particularly in Japan, Hong Kong and Macau. The Americas experienced softer performance in half one with similar trends across both quarters. This was driven by a slowdown in traffic and a more cautious spending by Americas customers locally. Within Asia Pacific, Mainland China was down 8% in Q2. However, we are pleased with the performance of the Chinese customer group, which grew 25% in the quarter. Here are a few examples of our newly refurbished stores completed over the last 6 months, starting with our Bond Street flagship, which reopened in July. As you can see, this elevated shopping experience effectively highlights our new product offering in key categories. This is our newly refurbished Omotesando store in Tokyo, we brought forward the opening to align with the launch of Winter 23. And since opening in September, we have seen a good response from customers and a considerable lift in accessory sales. And finally, here is our recently reopened Rodeo Drive flagship store in Los Angeles, which again seamlessly reflects the new brand identity and showcases our new products. For the launch of Winter 23, we also work closely with strategic wholesale partners. Here is an example from Saks in New York with a striking window takeover that ran along the Fifth Avenue store front. Looking ahead, we will continue to deliver our store refurbishment plan covering the majority of our key doors by the end of the year. Integrate Daniel's vision into our store footprint and drive productivity improvements by focusing on accessories and investing in recruiting and clienteling for top clients. And lastly, we will strengthen the performance of e-commerce with a targeted approach for key regions, categories and third-party partners. Turning to operations. We've a clear leadership across all teams, each with solid plans in place to deliver our strategic priorities. We have made significant progress across the value chain in terms of product availability, on-time delivery and material waste reuse. And further strengthen our supply chain in our core categories with the acquisition of a division by a long-standing outerwear partner Pattern. Looking ahead, we will deliver speed, quality and margin improvements across our strategic categories by leveraging our more verticalized operations, strengthening our product fulfillment operating model, adapt our operational plan to support execution, including optimizing investments, carefully reassess processes to identify improvements and cost efficiencies. Responsibility remains a cornerstone of our plan. And in the last 6 months, we have continued to embed sustainability in our operations. As you may have seen, we recently launched a partnership with leading global retail platform, Vestiaire Collective. This allows us to offer our customers a new way to trade in their pre-loved Burberry pieces and ensure they can be enjoyed for longer. Looking ahead, we will continue advancing product sustainability initiatives. Launch ReBurberry, a dedicated space and program for our customers to learn and engage with our sustainable products, packaging and circular services, develop a robust climate transition plan to enable us to deliver our carbon targets and strengthen our focus on communities by expanding our Burberry Foundation use programs. I will now hand over to Kate to talk you through the numbers.

Thank you, Jonathan, and good morning, everyone. Before I get into the numbers, I'd just like to say how delighted I am to be here as Burberry CFO. I've been in the role for 4 months now, and what I found is a company with a very clear sense of where it can win and a strong plan to get there. I share Jonathan's confidence in the strategy and I'm glad to have the opportunity to join the team at such a pivotal moment. And finally, I'm looking forward to getting to know you all over the coming weeks and months. So now let me turn to the interim results. In headline terms, we had a solid performance in the half, with comparable store sales up 10% and total revenue up 7% at constant exchange rates. Adjusted operating profit was up 1% at CER, but we did see some pressure on our adjusted operating profit margin, delivering 16.6% at CER, down 110 basis points as we continue to invest in the brand. Adjusted diluted earnings per share grew 2% at CER, down 5% at reported rates. We have increased the interim dividend by 11% based on the target of 30% of the previous full year's dividend as stated in the financial year '23 annual report. Net debt to adjusted EBITDA landed at 0.9x within our target range, 0.5 to 1x. We completed GBP 200 million of the current GBP 400 million share buyback by the end of the half and completed the program by the end of October. We did see a slowdown of luxury demand globally towards the end of the period. This weighed on our Q2 results with comparable sales decelerating from 18% in Q1 to 1% in Q2. Jonathan has spoken about guidance, and I'll provide further detail after updating you on the first half financials. Turning to the abbreviated income statement and as usual, changes will be referred to at constant exchange rates, CER. Revenue came in at GBP 1.4 billion, a 7% increase. Overall, we saw a 30 basis point increase in gross margin as inflationary pressures were absorbed by the business along with benefits from regional and channel mix. Adjusted operating profit was GBP 223 million, a 1% increase. The adjusted operating profit margin fell 110 basis points as the improvement in sales and gross margin was offset by investments in the business, particularly store network related selling costs, in line with our strategy to strengthen distribution. Adjusted diluted EPS increased 2%, with attributable profit impacted by a higher tax charge due to the increase in the U.K. tax rate offset by reduced shares in issue following the share buyback program. Free cash net outflow of GBP 15 million in the half reflects the investment in our business with higher CapEx as we prioritize the store refurbishments. Changes to the timing of our seasonal collections impacting working capital and higher tax payments as expected. Foreign exchange is a substantial headwind in the half, taking revenue growth to 4% reported adjusted operating profit and adjusted EPS declined 6% and 5%, respectively, on a reported basis. There were no material adjusting items in the half. I shall now move on to the detailed performance for the half, starting with revenue. Comparable store sales increased 10% in the half. Space was stable in the half leading to total retail revenue growth of 10% at constant exchange rates. Wholesale revenue decreased 8% due to pressure in the U.S.. However, our performance was slightly better than guidance. Licensing continued to see good traction, rising 44%, supported by the highly successful launch of our latest fragrance, Burberry Goddess. Total revenue was up 7% at CER and 4% on a reported basis. Moving on to the regions, which Jonathan referred to earlier, EMEA continued to grow double digit for comparable store sales in Q2, increasing 10%, albeit a slow down from Q1. The growth was supported by tourism, up 28% in Q2 versus a tough comparative base. Tourists accounted for around 50% of sales in the second quarter, in line with Q1, but below pre-pandemic levels. The EMEA customer group declined low single digit in Q2, in line with the previous quarter. Americas saw a 10% decline in comparable store sales in Q2, a slight softening from Q1, down 8%. However, the region continues to be up over 20% versus pre-pandemic levels. The Americas customer group was broadly in line with regional performance. Asia Pacific delivered 2% in the quarter with standout performances in Japan, up 41%; and South Asia Pacific, up 22%, both supported by tourism with South Korea softening down 7% in Q2. Within Asia Pacific, Mainland China was down 8% in Q2 against a period less impacted by COVID-19 restrictions. While this was a 10% decline over 2 years, we saw an acceleration from the Mainland Chinese customer group globally to 24% over the same period. Travel continues to be seen mainly nearshore in Asia. We remain confident in the medium and long-term prospects of each region and have refurbished a further 14 stores in the quarter, a total of 33 in the half. Turning to the profit bridge. Adjusted operating profit was 1% at CER, at GBP 239 million, but down 6% at reported rates. We're pleased with gross margin landing at 70.4% at CER, up 30 basis points from the prior year despite a 90 basis point headwind from inflation on raw materials and labor. This was more than offset by regional and channel mix benefits as well as lower transportation costs. Net operating expenses increased by 10% at CER due to investments in the business in marketing, client experience and stores as well as the impact of inflation on people costs. Currency was a headwind, as mentioned, bringing the reported adjusted operating margin to 15.9%. Turning now to the cash flow statement. Free cash was a net outflow of GBP 15 million, with conversion of 38% lower than last year as we continue to invest in product and distribution. Cash generated from operating activities decreased from GBP 289 million to GBP 271 million. Working capital was an outflow of GBP 154 million impacted by the build of inventory in preparation for festive as well as changes to the timing of our seasonal collections. Capital expenditure was GBP 89 million with GBP 53 million attributed to the store network refurbishment program. Tax was a GBP 98 million outflow, GBP 33 million more than the prior year due to the higher U.K. tax rate and one-off payments. Moving on to our net cash bridge and capital allocation. We started the year with net cash of GBP 961 million. We invested GBP 89 million in CapEx, primarily relating to stores, and dividends amounted to an outflow of GBP 167 million. We returned GBP 200 million via share buyback in the half, along with GBP 1 million in stamp duty, and closed the period with net cash of GBP 570 million and net debt of GBP 887 million after GBP 1.2 billion IFRS 16 lease liabilities. The balance sheet remains strong with net debt to adjusted EBITDA at 0.9x, including lease debt. We are within our target range of 0.5 to 1x with the increase from last year due primarily to the final dividend and share buyback program and CapEx. Turning to the financial outlook. We remain confident of achieving our medium-term guidance of GBP 4 billion in sales. We have made good progress against our strategy, seen in the positive response to our Winter 23 launch, and we're focused on realizing our full potential as the modern British luxury brand. As Jonathan stated upfront, the slowdown in luxury demand globally is having an impact on current trading. If the weaker demand continues, we're unlikely to achieve our previously stated revenue guidance for full year '24. In this context, adjusted operating profit would be towards the bottom end of current consensus range of GBP 552 million to GBP 668 million. There are no changes to our full year expectations for retail space being broadly flat, effective tax rate of around 27% and CapEx of around GBP 200 million. However, wholesale is expected to be down mid-single digit for the full year, below our previous expectation of broadly flat as the channel continues to be impacted by the macroeconomic environment. Finally, currency is now expected to be a reduced headwind based on the 25th of October rates, indicating a revenue headwind of around GBP 110 million and a profit headwind of around GBP 60 million. Further detail can be found in the appendix. I will now hand back to Jonathan.

Thank you, Kate. So to sum up, I'm very pleased with what we have achieved in the first half of the year. I'm proud at the pace at which we are executing our plan. I'd like to thank our teams for all their passion, energy and hard work. We're still in the early stages of implementation, and there is more work to do, but I'm encouraged by the early response. In the next 12 to 18 months, our focus will be on accelerating recruitment, engagement of our new customers, continuing to evolve our product, completing the assortment and aligning our commercial offer to our new brand aesthetic, and identifying efficiencies that can make us faster and more agile. We are mindful of the current uncertain macroeconomic environment and its impact on short-term luxury demand but we believe that our strategy is the right one, and we will continue to invest in key growth initiatives to deliver our medium-term ambition and goals. Kate and I will now take your questions.

[Operator Instructions] First question comes from Thomas Chauvet with Citi.

Three questions, please. The first one on LFL by category. In leather goods, could you comment on volume versus ASP in Q2? And with greater volume and scale you now have plus the pricing is that category on par with the profitability of outerwear. And just maybe quickly on men's and women's really to where that seems to have turned negative in Q2, so non-outerwear part. What do you think within Daniel these aesthetics will drive a step change in performance over the next year or 2? Secondly, on the new store concept, can you talk about the performance of refurbished store versus non-refurbished stores, particularly in September and October, where LFL seemed to have got a lot weaker, but you also benefited, I guess, from Daniel lease collection in-store? And thirdly, on OpEx, up 10% in constant CapEx in the first half. I guess that's a mix of underlying cost inflation and your planned step-up in marketing and store renovation program. If we look at the bottom of the consensus range that Kate just mentioned, GBP 552 million EBIT, that would imply around 2%, 3% OpEx growth in the second half in constant FX, if my math is correct. Does that seem sufficient to you to support the plan? And what cost will we want to maintain and to eliminate in the second half given the slower global demand outlook?

Yes. Thomas, I'll start with the question on the bags and the ready-to-wear then the store concept and then Kate will come back on to the OpEx. In terms of the bags and the leather goods, pleased with the performance in Q2, 8% growth in the half for leather goods, but women's bags also 7% growth in Q2. So we're pleased with the performance of actually the bags, both the old -- older bags that we have and also Daniel's new bags. Actually, I think the important thing to flag here, as I've mentioned before, we haven't -- we've been very mindful to kind of quite seamlessly integrate our old offering with our new offer, and that's really giving us a very satisfactory performance into the mix of the sales of our leather goods. So our vintage check line is still our #1 line, which has now overtaken the TB hardware line, which is positive. So quite a good performance. In men's bags, up 11%. And in terms of the newness, where, as I mentioned earlier in the presentation, the Knight bag, which is sort of what we see as our iconic first Daniel bag. It's in the top 10 of our best sellers across all of our winter collection. So this is positive. The new shapes that Daniel's that we have, the Knight is performing well. We also have a Trench tote that initially we saw as a unisex bag probably more focused on men's, but now we've seen a big uptick in tells for women's as well. Had a very strong reception to this in China, actually, and we've already placed reorders. So that's very positive. And I think, again, that really plays into, I think, our heritage. It's a trench. It falls at the outdoor and it really blends in well with our outerwear offers as well. In terms of the pricing, because I know that there's been some call outs on that. The Knight bag range really there, that's around GBP 2,000. So it's the top end of our new offer. But it really is in line with price similar to our peers, iconic lines. So I think we feel we're in the right positioning there. We did say that we wanted to elevate our leather goods offer and we're really pleased with the reaction that we've had, both from our existing customers and our new customers coming in. So this has been positive. Also the price increase has really been done by -- with the reason of the higher level of quality, higher level of leather quality but also a much stronger focus on to detail and the hardware as well. So this is positive. And then as we move on to our next Daniel Group that we think is going to be very strong as the shield bag. And this is priced at GBP 1,500. That's actually in line with our lower pricing as well. Again, we think that the price positioning is where it should be, and we'll continue to monitor that. And the Trench tote that I mentioned that's not working well is the GBP 1,000 mark. So we're comfortable with the pricing. And again, we also have the existing offer in place there. Good observation on ready-to-wear. I think the season that we've reported, and again, I've mentioned this before, our ready-to-wear offer historically, particularly in the summer has been driven around the Jersey categories outside of outerwear. So Jerseys has been mainly the core driver of our business there. We feel the opportunity, as I've called out before, we've got a lot of opportunity in categories outside of that. So dresses is the biggest call out, I would say, other ready-to-wear categories as well going through men's. And we've seen a good level of interest in that as well. So we think as we are into next year and we get more of Daniel's product into the stores, starting from actually our recollections which is obviously more of that -- it's about 70% of our seasonal buys come into the pre-collections and this really leans into the other ready-to-wear categories there. So we'll see that mix. And I'm sure we'll see the mix of sales adjust and adapt to that as we go through. So this is positive. On the stores, as far as the stores are concerned, we're really -- I would say one thing to call out here is that we've actually refurbished 33 new stores in the half which is a big achievement for the teams. So more than one a week. And actually, a lot of these are big stores for us. So we've done Los Angeles. We've done Dallas, Houston, Omotesando in Tokyo. And of course, Bond Street as well, which we're very excited about. Their performance, as we've mentioned before, in terms of the performances of those stores, we're seeing a higher level of productivity coming from both the AUR and also the average transaction value. So -- and this is a mid-teens uplift versus stores in the same regions in the same areas as well. So again, we're positive, and we're really pleased with the fact that we've been able to -- a couple of these stores, Omotesando being one of them we actually -- we thought we wanted to open this before we launch with the new products, and it was a great decision because we've been really pleased with the performance of that. And actually, we've seen a really good strong performance coming from the accessory categories in the store as well. So I think those are the main points to call out there.

And then just moving on to the third question on cost, Thomas. So in the first half, you can see that we really have continued to invest in the business with OpEx up 10%. And I think it's fair to say second half, whilst the external environment is more challenging, we're absolutely committed to protecting the consumer-facing areas such as marketing. I mean I think your calculations are broadly correct. The absolute level of spend will be slightly higher H2 versus H1. But I think fair to say the year-on-year growth will be low single digit. But as I say, very much protecting the key spend.

We now turn to Chiara Battistini with JPMorgan.

I have, I think, one for Kate and one for Jonathan, actually. So the first one on your updated guidance for the year. I was wondering whether you could share with us what kind of retail like-for-like assumptions you have embedded in that comment about the EBITDA coming towards the bottom end of consensus. And following up on Thomas' question as well OpEx. In case the like-for-like -- the retail like-for-like keeps on slowing more than your initial assumptions. What would be the priority saving -- continuing to work on your repositioning and supporting elevation or protecting margins to some extent? And the second question on the consumer you're seeing coming for Daniel Lee's product. I was wondering if you could give us a bit more color on what kind of consumer you're seeing if it's your existing consumer, your new consumer that is coming specifically because of Daniel Lee. And any further color on the customer after Daniel Lee's products specifically, please?

Thank you, Chiara. I'll start with the first question. I mean, look, I'm not going to guide on revenue for the second half, but we have guided on profit. We've said that we expect operating profit to be towards the lower end of the range. So I think it's probably worth noting that moving towards the bottom end of the range on revenue would probably be a good starting point. Also worth noting from a gross margin perspective, still expecting that to be similar to the prior year at constant exchange rates. So obviously, you'll note that there is 110 basis points headwind from currency side. So I think with that, you can probably work it out. I think -- all I would say is that throughout Q2, in line with what our peers have been saying, we did see a deterioration, I think it was really September where we particularly noticed the global slowdown. And I think as indicated by our guidance, fair to say those trends have continued into the quarter. In terms of OpEx, I think as you'd expect me to say, we're going to be obviously being very vigilant on sales performance. And likewise, we'll be very focused on cost, 20% of our cost base is obviously variable. So that will move with sales. And then where possible, as everyone else is saying the same thing, we will absolutely be focused on discretionary spend. But as per the first question, I think it's important to note that we will continue to spend where it matters. Those are the consumer-facing areas. We've talked in the past about marketing spend being high single-digit percentage of sales, and we will continue to support that.

Just on the customer. I mean, I think, first of all, we have a very important existing client base, which we are -- we've obviously -- we did before the collections launch, we did a number of trunk shows globally and had a great response to those, actually had a much stronger pickup than we expected there. So they're really engaging very excited with the newness and what they're seeing. And I think that -- just calling on that, this is one of the things that I've mentioned before. . Our great amazing store teams, they're really excited about having a lot more to talk about as we go into these new categories across ready-to-wear, for example, new bags, Daniel being known to be a strong accessories designer as well. The sales teams have been able to really engage with our existing client base and bring them in. And we've seen, for example, in terms of our new bags, that have come in. We've seen a big pickup from our existing customer base on that. And so this is really pleasing. . We've also seen a higher level of increase in number of transactions of customers buying greater than one product, both in men's and women's which is fantastic. We've seen a higher share of cross-selling of ready-to-wear across bags and shoes, which is, again, very positive. And people very much, as I highlighted in the store presentation that we did in September, I think people are really seeing that they can easily now buy more to the as well. And then in terms of new customers, clearly, this will take time. I'd like to really highlight that we have only been live for 6 weeks now. But it's very early days, but we've also seen some really encouraging indicators on that. And we've definitely seen some new customers coming to them. Particularly, I have to call out in Asia, across Asia, Hong Kong included China. We've seen there's a strong awareness of Daniel and his talent and what we're doing actually and a positive response to that. And I'd say one call out there that we're seeing, we've seen very early days as well as I don't want to play too much on it, but we've definitely seen an increased performance in shoes and bags in China, which is a good sign and a strong awareness of what we're doing. And then lastly on that, the events that we've done globally, which we've been really excited about. We decided to focus on that and have a real push on doing big events sort of city takeovers to have a high level of impact. We've had 100,000 visitors across 30 days to the pop-up that we did in Seoul and Seongsu in Seoul. So really, really big move big performance there. All the spaces were booked within a few days. I actually have the pleasure of going to that event. And there were crowds and the streets were actually blocked up to see, one, the influencers that we bought in, but to get glimpse of Daniel as well. So this shows that we've got a bit of a stale factor there as well, which is really impressive. And then just lastly on to well, two things to also flag in terms of China. We did an event 2 weeks ago in China. And we saw a big spike in terms of searches for Burberry on WeChat, both Burberry and Daniel Lee on there. So again, it shows that we did the right thing and the right timing. And it's great that we've done this and ramped up that activity as we've gone live. And then lastly, I'm sure you've seen we did an event in New York last week. And again, I'm really pleased with the outcome there. We had a lot of press coverage there. It was great to also focus on the Americas. We had a great turnout. Ms. Elliott, Mega Gillingham, Karlie Kloss. We had a really great turnout, everybody were in Burberry. Again, that bar is open for a few more days as well, and we're encouraged by the results that we're seeing there.

Our next question comes from Louise Singlehurst with Goldman Sachs.

Just two if I could please. Just going back on to the -- first on the guidance. We all trying to do is probably unpick the method with regard to the macro messaging and the brand specific. And you've given us lots of anecdotal point this morning in terms of the improvement in the underlying brand momentum term searches and the new content. But I just wonder if you can help us think a little bit behind the macro around the fringes, I would argue that the commentary from some of the peers and some of the local U.S. names has got a little bit more encouraging. Again, I do definitely say around the fringes and there's a lot of uncertainty. If we look at the commentary in the last kind of 2 or 3 weeks, probably a little bit more favorable than what we thought maybe 5 or 6 weeks ago. So on that question, I wondered if there's anything specific by region that you've seen that stand out? Or if there's anything in this brand repositioning that you're seeing that's behind into expectations? And then my second question was specifically on China, please. I think you mentioned it was down 8% in Q2. The cluster is up 25% in Q2. I presume that's a year-on-year number. I think in Q1, you gave a data point that it was up mid-teens in China on the cluster, but on a 2-year stack. I wonder if we could have the comparable number for Q2 as well on a 2-year stack.

Thanks, Louise. I'll take that one off. I mean, look, as you rightly highlighted, along with our peers, we did begin to see a slowdown. It was particularly in September. I think every brand is trying to contend with this at the moment. I think it's really important that we do decouple, if you like, the macro piece and kind of confidence, if you like, in our own strategy. But I think commenting specifically on the regions, I think the interesting thing about the current backdrop is that it is a little bit everywhere. I think often you have a scenario where certain areas are doing well, others less so. Where I think this time around, the consumer has been a little weaker, particularly since September everywhere. However, rightly -- you rightly point to, things are volatile. And whilst I'm not going to comment on current trading. But yes, things are varying week by week. I think fair to say the Americas, I mean they were soft in Q1. We saw similar softness in declines in Q2 and Q3. Again, I'm not going to comment on current trading, but they've been some weeks more positive, some weeks more negative. And I think I'd say similar things for the other regions as well. In terms of China specifically, if I -- so if you're looking at last, last year, so 2 years ago, the cluster, if you like, the Chinese nationality, it was 15% in Q1, and then we saw that accelerate to Q2 where it was plus-24%, whereas versus last year, obviously, you had the big COVID impact in there. So Q1 nationality was very strong at plus-78% and then Q2 was plus-25%.

And can I just check with -- I suppose it's a question for Jonathan, that there's nothing in terms of the brand like the repositioning and the agenda that's to call out that's above ahead or behind initial expectations from earlier in the year.

Louise, no. I mean, clearly, we're in a challenging situation in terms of the macro. We've really only launched annual product in September. So these this performance is absolutely nothing to do with that. We've been really pleased with the response to the collections. Obviously, we're now live. I think the positive thing is that we are now live with damage products. This gives us a lot more visibility on what's working and what's not working, and we're very mindful about that, and we will adapt and adjust to that. But overall, no, I think this is really down to the macro.

Our next question comes from Antoine Belge with BNP Paribas.

Antoine Belge, BNP. Two questions, if I may, and I'd like to pick up on what you said about the Chinese cluster and especially the year-on-year, you said from 78% to 25%. So that's roughly 55% delta on something which is maybe around 20%, 25%. So let me explain a 10 to 12 points of deterioration between the 18% comp and under 1%. So it means that outside of the Chinese, it's been as a substantial -- sequential slowdown. I don't really see that much in the American cluster. So you hit the European, but also, I would say that in Asia, the local consumer as opposed to the Chinese traveler. And my second question is on the implied guidance. So if we move to the lower end of the top line consensus around, which I think is around GBP 3.1 billion. That would imply a sort of flattish year-on-year growth in H2. And at the moment, it seems that even though you don't want to comment the trends are negative or have been negative in September and October. So to get to a more flattish number, is it because you expect that Daniel Lee product offering will actually a little bit more weight as we move towards the month of March of next year. And finally, my third question is about the -- your sort of pricing -- your in the next 6 to 12 months?

Thank you. Well, perhaps I'll take the first couple and then Jonathan comment on pricing. So look, I mean, I think on the Chinese point, what we have seen is very much spend shifting offshore, as you'd expect with tourism picking up there, although that tends to be want to say shifting offshore, nearshore travel. So you can really see that coming through. If you look at the numbers that we've given for Japan, very strong, also seeing really strong numbers in Hong Kong and Macau. So I think the way to look at China, you're right, the region is down. So Q2 minus 8%. But in terms of the nationalities, we -- as you'd expect, we're looking at really on a kind of 2-year view because I think you quoted Q1 to Q2 this year, but Q1 very much distorted by COVID, but on a 2-year view, we have seen an acceleration in Q1 into Q2. So that's 15% to 24%. So broadly, as we would have expected there. You talked about America. I mean I think you're right. The comps are broadly consistent over the last 3 quarters -- the 3 quarters similar kind of mid- to high single-digit negative. In terms of the implied guidance, yes, you're right. I have said I'm not going to guide on revenue today. But yes, your assumption of the low end of the revenue range, as I said earlier in the call is certainly a good starting point. On the trends, look, we have called out September being the weakest month in the quarter. So we certainly saw a deterioration through Q2, very similar to what others have been saying. I think today in the statement, we said that trading deteriorated. So I think it's probably a fair assumption what you said about the second half. I'm not going to guide, obviously, on the second half, it is too early to do so. We're 6 weeks in remaining cautious on the macro. But what I would say is that we are just launching into festive. Our campaign launched on 1st of November. We're really excited about the new gifting proposition. We've got a great campaign behind it. We've got more new product coming into the store every week, clearly building Daniel's product, which had no impact at all in Q2. Spring pre-cool coming into the stores as well. So I think, again, if we kind of decouple the 2 things, we've got reasons to be positive, certainly on what we're doing notwithstanding the macro piece, which is why we're being a little more cautious on the second half.

Yes. And in terms of the pricing, our pricing strategy is something that we highlighted previously. We feel that there's an opportunity for us to elevate. Our previous pricing structure was skewed quite disproportionately to the lower price bracket versus our peers. So I think this is also a positive for us, and we continue to really focus on our entry price and our volume crews that we have. We are also adjusting our pricing to really reflect the increasing quality. So one example in terms of our core product offer that we have, we've really increased the quality there, the quality of the fabrics. But still, those prices, I think, are more than in line in terms of entry price than where they should be. So I think this is really important. We raised our recently mid-single digits. This was to coincide with the renewed offer that we have in terms of a higher level of quality, more sustainability in terms of fabrics. So this was positive. And again, you've seen very strong performance in our rainwear categories as we continue to focus on that. The new products in the stores at the moment, the newness, the new collections. This was -- as I've mentioned before, this was a runway collection. These are typically, they're more elevated, a high level of design, skews much more towards the higher AUR categories, especially in leather goods and outerwear. Now as we enter into December, our pre-collections launch. So this is focused on what we would develop more of the core offer of the business. So a lot more on price positioning there. This comes through December and onwards. We've also -- and I'm really excited about this and -- and actually, our wholesale clients have been as well. We're now reenergizing our core offer as well with a new twist to it. So I think, first of all, this will give us of freshness to our old core offer, a better level of animation, higher level of quality, more sustainable fabrics. But again, in good price positioning as well and good sweet spots there. In terms of the leather goods, again, our iconic Knight bag, it's priced over -- it's just over GBP 2,000. The similar level to our peer's iconic leather goods lines. But more importantly, we also have groups at the same levels of our old existing groups. So our Shield group, for example, is around GBP 1,500. This is the same as the as well. So we're comfortable with our price pricing strategy. We're comfortable with the elevation. We think it's the right thing to do in terms of increasing quality. And obviously, it's something that we continue to monitor as we go through this project.

Just a quick follow-up. So with regards to the European cluster, is it possible to give us the trend in the quarter and remind us what it was the previous quarter?

Yes, of course. So in EMEA, so in the region, Q1 was plus 17%, Q2 plus 10%. So in terms of locals, they were down single digit in Q1 and Q2. Tourists were up double digit in both Q1 and Q2. And in terms of the absolute kind of tourist level, again, very similar in Q1 and Q2.

Our next question comes from Rogerio Fujimori with Stifel.

Jonathan, I wonder if your strategy pillars attract more elite customers and sell more bags above the GBP 2,000 threshold, I think to narrow the gap versus peers over time. So I think consensus in the market thinks it will be very difficult for luxury brands to drive mix up next year and for Burberry to elevated brands. So could you talk a little bit about how you can leverage the breadth of the product offer to manage and keep driving? I think brand elevation in the current environment. And then in America, I think the suite I think you flagged, I think, more recruitment of higher income from our customers and new customers. So could you talk a little bit about the trends between you and existing customers in the U.S.. And do you see any signs of repatriation of American cluster purchases from Europe back to the U.S. towards the end of Q2?

Yes. So I think, Rogerio, your first question was on pricing and our ability to adapt to that. Is that correct?

It was more about the ability of Burberry keeping driving brand elevation in the current trading environment.

Yes, yes. No, so -- yes, a good question. We -- again, the most important thing to highlight here is over 50% of our offer currently in our stores is our core offer and our replenishment offer. So we haven't -- actually, we haven't delisted any of our core products. So I think this is a real positive, and it's a strength that we have. We're very proud of the core offer that we have and we'll continue to build on that. We definitely feel that there is an opportunity for us to recruit a luxury -- a higher level of luxury customer into the brand, especially through accessories that is still a big opportunity for us is to grow into our accessories categories. So we feel that this can be done through both a high focus to it from a design perspective, a high level of quality of product, something that will align itself to our key iconic categories that we have at the moment like our Trenches, for example. So we're pleased that we can further develop on that. We've definitely seen -- one of the positives is that we've seen an increase in recruitment of our top level elite customer base. We've seen a high level of performance coming through in spending from them across all regions, actually, even in the U.S., which is positive. So they're reacting and engaging with the new collections in a good way. So I think this will also help us really transition into the new aesthetic. .

I think your second question was more the Americas cluster was mid- to high single-digit down in both Q1 and Q2. And I think in terms of how the customers are behaving, the new and repeat customers are performing fairly similarly actually. And tourists, I think tourists are up about 5% in Q2 in the U.S..

In the U.S., we've seen more traction towards female clients a continuing shift towards with the more affluent customers, again, with the top clients outperforming. And as we reported in the last quarter, a little bit more challenging on the entry price categories that we have.

And I think on your saturation point, we're certainly still seeing American shopping in Europe. But obviously, we're comping quite a tough base there because we saw an increase in spend given the currency benefit.

Our next question comes from Charles Scotti with Kepler Chevreux.

I have three. The first one on Q1 trading. I'm not going to ask you to comment on October and November, but could you comment on the -- for your comparable store sales growth, it was plus 1% in Q2. So if I have to assume September was negative maybe in the high single-digit range? Secondly, on wholesale, H1 was a touch better than anticipated, but you don't grade your full year guidance. How shall we read this? Is it due to the general water environment? Or was the reception of Daniel Lee new collections with the key accounts less positive than anticipated? And thirdly, if I'm not mistaken, the U.K. government will review the decision on VAT-free shopping next Wednesday? Do you have any insights on whether or not they will reinstate it? And have you already quantified how much decision dragged on your sales performance? Just to help us assess what could be the positive impact for the outcome is positive for you next week?

Okay. Kate will take the first question, and I'll come on to the wholesale and the VAT.

Okay. Perfect. Well, that's kind of reasonably easy because I think current trading. I'm not going to obviously break out month by month in Q2, how we were trading. But yes, absolutely, you're right. The exit rate, that was September was certainly the weakest month in the quarter, and we see no difference. In the statement, we said trading deteriorated in the quarter. So I think that it was a fair assumption.

Yes. And just on the wholesale, we think it's clearly related to the challenges that we have in terms of the macro is affecting our wholesale clients in the same way. We expect the full year to be down mid-single digit. This was really coming in primarily from the collections that we had in September. So when we spoke to you in July, we launched our pre-collections, and the response was quite positive as business has softened for us and our wholesale clients. We definitely saw a change in sentiment there coming through there. . They've welcomed the Spring 24 collection. I think this is definitely a positive. I mentioned earlier about the new core that we've now launched to the market really positive response to that. And obviously, at the moment when things are challenging more on the macro, the wholesale clients typically take a more cautious approach to new products and new offer. So it's very much probably leans more into a wait-and-see than something that's a little bit more aggressive, and we understand that. It's mainly in the U.S. that we're seeing the biggest impact of the big partners, the big department stores that we have in the U.S., but they're still very positive about what we're doing, the journey that we're going on, they're seeing positive changes, particularly in the accessories areas as well. So we think we're setting ourselves up well for the future going on there. And we're really supporting with them and working with them to manage that. In terms of the VAT, as we've stated before, we're disappointed with the U.K. government's decision not to reinstate the VAT retail export scheme. There's continuing lobbying from this, not just from as from the industry in general. We think it's a missed opportunity, particularly in this environment and clearly impacting customers spend and how they spend, where they spend it globally. We've seen a good uplift in terms of tourist spend in Europe from European customers, from Middle Eastern customers from Americans swing much more towards spending in Europe versus the U.K. .And obviously, us being a British brand, we've invested in 2 new incredible flagships in the U.K.. And it's a pity that customers are choosing to spend that money in tariffs versus in our great stores in London as well. But fortunately, we are a global business, so we can we can manage that, but definitely, it's something that we hope will be corrected in the midterm.

We now turn to Thierry Cota with Societe Generale.

I will have three follow-up questions on comments you've made. First, you said you are very pleased with the reception of Daniel Lee products. I was wondering since the runway collection was launched early September. How large has been the outperformance gap versus the group average since then how better -- has been versus the rest of the offering? Secondly, you have said several times that the better quality of the products justify the higher prices. So I was wondering whether there was an exact matching or whether we could have some hope for gross margin going forward in the coming years? And then lastly, on store productivity, you highlighted -- you repeated actually comment made in the past about a mid-teens productivity boost post reopening of refurbished stores. I was wondering, compared to the 25,000 sales per square meter you're targeting in the medium term, where did you stand in H1 overall and particularly in the reopening stores.

Okay. Yes, just on Daniel's Collections. Again, very early days to -- we're 6 weeks in. I would say there's really nothing to call out between the performance of Daniel's products versus the current offer that we have. All I can say is that the reactions have been in our expectations. Customers are positive. They're seeing the change. For me, the biggest call out is the fact that our stores look a lot more animated now. And clearly, at this stage, and again, early days, but at this stage, it's clear to me that as we go into future seasons, people will be able to buy across categories through our retail network more than they have done before. So this will improve on our units per transaction. And I think it will just also improving the overall shopping experience through the network. We've also continued to -- in terms of, I think one of the bigger call outs here in terms of Daniel's, let's call it, new product. What's actually been quite seamless are 2 iconic categories and strengths that we have, as you know, very well, our rainwear. And we've seen how this has really seamlessly been integrated into the offer, and we've had not only a big improvement in terms of our heritage rainwear offer, but also Daniel's newness and Daniel's new shapes that he's having here, we've had a great response to those as well and a good positive performance there. And again, just -- it's not being kind of a to me, it's not been an old and new, it's something that actually I think we've integrated into the business very well. And again, as we go into the festive season and the winter season here. We've also seen the same thing with [ scarf ] and Daniel believes that this is something that we can really continue to elevate there. In terms of the pricing, just as an example there of what we have done in terms of the pricing, we wanted to not only increase the quality of the fabric, but moving to a more level of sustainable fabrics. So organic cottons, more. So we've actually refreshed this through our core offer of shirts, for example, men shirt and increase the price accordingly. But these shirts, just to highlight, they're still under GBP 500. So it's still in a nice, good sweet spot for us, in line with our peers. So not a huge increase and something that we think will impact the volumes that we're having. And then lastly, in terms of productivity, really pleased with the fact that by the end of this year, around about 50% of our network will be fully refurbished and of this 50%. And these are really now the key doors. So I think this is a real positive, so we can really focus on that. And I think this will help us increase our products in productivity further. The offer will be better. And we're still very much feel that we're on track towards to achieve that productivity goal of GBP 25,000 per square meter as we communicated. So very much on track as far as that's concerned.

Our next question comes from Luca Solca with Bernstein.

Maybe one question about the wholesale exposure and the inventory overhang risk that you see, and how you're planning to manage this inventory overhang? We know that U.S. department stores tend to discount very aggressively if they're caught up with excessive inventory. This could be damaging to the brand, especially as you are trying to elevate the perceived brand image of Burberry being subject to significant discounts would be very damaging indeed. I wonder how you're thinking about that? What you have organized in order to take care of this risk? If you're planning to take inventory back and convey it through your factory outlets? And what is the role of factory outlets today in the business as they convey a very significantly cheaper product and could potentially also contribute to cheapening the Burberry brand image? As a second question, looking at the newness that Daniel has been bringing to the brand. There's a very significant fashion element at least in what we perceive which comes particularly obvious in the fashion and in the apparel collection. I wonder how you balance the brand's nature as you have, I think, a heritage element and a fashion element that need to be combined? And how you're faring in this market where consumers seem to be asking for sophistication on top of fashionability and where a luxury seems to be rampant?

Thank you, Luca, and good observation, I think, in terms of the wholesale exposure. I think what we're doing here, and this is part of the reason why we've seen, I guess, a lower wholesale order take in the recent seasons, so lower than -- so lower guidance there is because we're helping and we're supporting our wholesale partners, managing their existing buildup that they've had, particularly on the core offer. So this has been kind of, I would say, a correction that we're working with them on. And yes, some of them we do support. They're strong partners for us. They're good partners for us. We will work with them and support them where we are. I have to say in terms of those wholesale clients, most of the offer that they have currently has been clearly, it's been with our core offer. So it is something that we think we can manage quite well rather than something that we can pump through the outlet is just really a correction, but where they need a bit of help with our key partners, we will help and support them. In terms of the outlets, obviously, the outlets still for us at the moment are an important channel for us in terms of liquidating the old product. We're also managing that channel as best we can. So I think it's still an important channel for us, but very much at the moment with the strategy that we have in place, we're really, really focusing on driving the full-price business and the -- that business, that side of things. But -- at the moment, we will use outlets to discontinued products. And I would like to sort of on that note, we don't have an issue, I believe, in terms of high seasonal fashion product from the old collections. So it's not something that we're going to be needing to really dump heavily seasonal product into the outlet network in the coming months. So I think this is a positive and credit to the business that we've been able to manage our inventories quite well in this respect. Good call out on newness and fashion. I think we agree with you on that. Obviously, again, picking up on this, this is what you have seen. I know I've seen your comments and your observations. But what you have seen is a show collection. So -- and this needed to be strong, as I've mentioned before, credit to Daniel and the teams, they launched this collection within 4 months of Daniel joining, had a high impact, drew a lot of attention. Very pleased with the responses to that. But yes, it is a fashional show collection. As we now go into the new offer that you'll see coming through in the coming months, starting from December a much more balanced offer really focusing on that. We've got a very strong focus on that from our merchandising team from myself as well. Very aware of the opportunity in terms of Burberry playing on. To me, actually, as we go through this, this timeless element to Burberry is something that we can really play on. I called out earlier the rainwear category. If you look at Daniel's rainwear, it's not high fashion, is actually very elegant, very timeless as well. And I think this will become for us, some new core product there, the same with the stores, And again, talking about -- I would say then we've go into the leather goods, really, again, playing more into probably more into the quiet luxury space in terms of style and aesthetic than maybe we were before. So very aware. And I think you'll see as we go into pushing more of the new Daniel product or the new Burberry product into the network in the coming months, you'll see also this new core coming through as well in a more dynamic way, including a clear focus on price positioning as well as we update the call.

We now turn to Piral Dadhania with RBC.

I have two, please. The first one is just on the offer side, following up on Luca's question. If our analysis is correct, we think you've increased the ready-to-wear SKU count by around 50% in the last 3 or 4 years. So going into a slightly more challenging macro environment. Is there any concern from your end that you might have a higher markdown risk if the product doesn't sell through because the demand trends are a bit weaker. How do you manage that bigger SKU count, the range expanding as much as it has to support the new aesthetic? That was my first question. And just maybe as a follow-up to that, what's the mix today of carryover versus seasonal now that you've got the new Daniel Lee Autumn/Winter product in store? And then my second question was just around the current trading guidance comments and the fact that there is a macro slowdown in luxury consumption. Obviously, the offset to that from your perspective is the new -- is the turnaround the Daniel Lee product, et cetera. So if we think about the macro slowdown that you're attributing to the softness, how should we think about that from the perspective of footfall versus conversion? Which one is a bigger factor in your slightly more cautious outlook because we would expect there to be a bit of an uptick in the footfall coming into stores to look at the new products. So I just wanted to understand how consumers are behaving and what kind of observations you're seeing on that front?

Yes. So just in terms of the current offer and the SKU count, obviously, as we're now going into a new world with new product, we wanted to invest and back Daniel's product, put that through, make a statement. So we definitely have done that. At the same time, and I think this is, again, really pleased that we did this. We really felt it was important as we go through this transformation to protect our existing core business that we have as well. So for this particular autumn season, we front-loaded our autumn collections. Typically, we would normally split our buyers to be 50% show collection and 50% Autumn collections. But actually, in terms of newness, we increased the newness from Daniel's product. But in terms of core products, we pushed that forward into the autumn season. Because we clearly wanted to protect our existing offer that we have now. So this is why you're probably seeing an overlay of SKUs there. As we go through this, we'll start to reduce that down. And clearly, as we've stated before, for us, the opportunity is to grow a much bigger share of our business towards the accessories categories into bags, into shoes, shoes as we -- as I've mentioned before, is a smaller share of our business compared to our peers, really pleased with what we've done there and what we've built there. This will take time, to be honest, we're not seen to be at the moment -- go to shoe brand, but I'm very confident that we will be in the coming season. So I think this is positive. And then in terms of the mix of the offer, we still, as I mentioned earlier, and this is a great strength for Burberry. 50% of our mix of offer is carryover and replenishment and the 50% is in newness. And what we're looking at now is refreshing the newness, making that feel more compelling, more relevant the luxury customers. So -- but at the same time, I don't believe it's overweight. In terms of the current macro environment and the trading, clearly, the challenge here is conversion. For us, it's conversion that will be something that all of our teams are focusing on because if the traffic at the moment, obviously, clearly, traffic is down for us and for our peers. So it means that we have to drive a higher level of conversion through the network. And that's really what we're focusing on. And I think playing into this new more dynamic offer that we have in our stores where -- and again, for me, and genuinely believe this, and I know probably, hopefully, a lot of you observed this, when you're looking through our stores now, you can really see a clearer offer that's not just leaning too much into our strengths, which we'll continue to build on of outerwear, for example, and And we really now have a much more fuller offer to enable us to have high level of conversion in the midterm.

We now turn to Zuzanna Pusz with UBS.

I've got two very quick ones and a follow-up. So -- and maybe first of all, on the various consumer clusters. Thank you so much for sharing all of the details. I wanted to just follow up, given that the Chinese consumer has slightly accelerated on a 2-year stack. And it sounds from your comments on both Americas and European locals were pretty much unchanged versus sort of Q1. Would you mind explaining which consumer clusters would have decelerated the most in Q2 versus Q1, just so that sort of we get the idea of where the most of the deceleration came from? Secondly, a very quick question on e-commerce -- U.S. seen from this earnings season from the companies that e-commerce has been a bit of a drag on retail given that it tends to be a bit more exposed to the aspirational consumer. And there's been a general return to stores. I was wondering if you could share with us how much of a drag e-commerce may have been on your like-for-like this quarter versus prior quarter? And the third question, which is sort of a follow-up. I think, Jonathan, you mentioned earlier that your fixed cost base was roughly 80% of your loss. Can I just double check that sort of correct? Is it 80%? And I'm asking because it seemed a little bit higher than I would have expected versus peers. So I just wanted to double check that the number and maybe that's the case because you've just been cutting quite efficiently cost over the past years?

Okay. So I'll kick off with the regional one. I mean you can see in terms of quarter-on-quarter, obviously, the EMEA region, you can see Q1 plus-17%, Q2 plus-10%. So clearly, we have seen a bit of a slowdown there. I think also worth mentioning South Korea as well. We did have a negative comp there in Q2. And as I said, the macro is impacting everywhere as per previous commentary. America, slight slowdown from Q1 to Q2, although broadly consistent. And you're right, in terms of overall China cluster, actually on a 2-year view and acceleration there. So I think probably call out particularly Korea and a little bit in Europe. I think maybe before I'll hand over to Jonathan, just to confirm, you're right on the cost base. We just talk about 20% variable broadly and 80% fixed.

Yes. And just on to digital. I mean, as we've seen with peers and third-party partners, the digital channels suffered the sort of really post-COVID, primarily, I think, driven by a greater desire for customers to purchase in-store. There's definitely been a softening in searches 4 brands across the luxury sectors, which is a challenge. And I think this is really particularly in terms of the entry price categories. In terms of Burberry, we obviously see digital as a key part of our omnichannel experience, and we've now invested in a new design of site, which we launched in terms of September. I think just calling out on that, we're still going through -- we launched it in September. Whenever you launch a new site, there are always things that you need to look at and improve and develop in terms of the experience. I think one call out here is that we are -- I think when you're showing things online, it's probably harder to blend in the old versus the new. So people are really seeing. Daniel Lee is new and there's a high level of fashion coming through there. And then they're also seeing the older -- the older more carryover products is there as well. And as we start to evolve and develop that, that will be more less experience in terms of absolute product journey and display on our side. So again, early days for us in terms of our own digital sites since the relaunch, but we're continuing to invest in digital. We're excited about the channel. We've been known to be a digital-first brand, and we will continue to focus on that and make sure we continue to give a stronger level of customer experience.

This concludes our Q&A session for today. I will hand back over to Jonathan Akeroyd for any closing remarks.

No. Thank you for your time today. Obviously, very good to give you further color on our quarter performance. Just to reiterate, we do have -- the external environment has become more challenging for us, but we're very confident about the plan that we have in place. We've been -- I'm very proud of the fact that we've executed at a very high level of state, in this has been recognized. I'd like to give credit to our teams across the company to helping to achieve and make this happen. And I'm looking forward to talking to you again in January. Thank you very much.