Burberry Group plc (BRBY) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to our year-end results and our update on our Burberry Forward Strategy. I'm Josh Schulman, CEO of Burberry, and with me is Kate Ferry, our Chief Financial Officer. I'm delighted to welcome everyone to our new refurbished headquarters. We recently consolidated our Horseferry campus into this single building, which has been updated to foster collaboration between our teams, which had been spread across several locations in London. Over the past months, we have moved at pace to stabilize the business and position Burberry for a return to sustainable, profitable growth. We are energized by the initial response from our customers. While we are still at the beginning of our transformation, our early efforts are creating a solid platform for what's ahead. I'm more optimistic than ever that Burberry's best days are yet to come. I will now hand it over to Kate, who will take you through the financial results, and then I will update you on our strategic progress. Kate, over to you.

Thank you, Josh, and good morning, everyone. Following a challenging first half, for the full year, we delivered total revenue of GBP 2.46 billion. We saw significant improvement in the second half after we launched Burberry Forward with comparable retail sales down 5% compared with the 20% decrease in the first half. Full year comparable retail sales fell 12%. As signaled in January, second half profitability offset the first half loss and we delivered GBP 26 million of adjusted operating profit in the full year. Free cash flow was GBP 65 million, with a strong working capital performance, which partially offset lower operating profit. In November, we set out a number of short- to medium-term initiatives to stabilize the business. We said we'd bring scarcity back to our inventory model. And I'm pleased to report that we've significantly reduced inventory levels through swift action to reduce buildup, coupled with tighter buying activities. Gross inventory landed 7% lower than last year, overachieving our guidance of at least a flat outcome. As anticipated, these actions resulted in a further decline in gross margin as compared with the first half, albeit better than anticipated. We've reduced our cost base delivering GBP 24 million in savings this year. We've taken a disciplined approach to CapEx allocation, spending GBP 151 million, in line with guidance. We've strengthened our long-term capital structure in the year with the issue of GBP 450 million bond and remain confident in our liquidity and headroom. I'll now take you through a more detailed review of performance, starting with revenue by channel. I'll refer to changes at constant exchange rates. Retail revenue fell 11% in the year. Space contribution was 1% with comparable retail sales down 12%. Wholesale revenue decreased 35%, in line with our guidance. The channel has been impacted by the challenging environment across the luxury sector as well as changes we've made to increase control of distribution in EMEIA as we create a smaller but better quality business going forward. Licensing grew 9%, supported by our continued strength in fragrance with Burberry entering the top 10 prestige women's fragrance brands in the year. Total revenue for the year was down 15% or 17% on a reported basis. Turning now to regional performance. The pie chart on this slide highlights how well diversified we are with a strong global footprint across the Americas, EMEIA and Asia. Comparable store sales declined 6% in Q4, with the second half down 5%, improving from the first half down 20%. And as a reminder, our Q3 result included a low single-digit percentage benefit relating to our enhanced end-of-season activity, which did not reoccur in Q4. Removing this benefit, we saw a sequential improvement between quarters for the group. The slide also shows regional performance on a quarter-by-quarter basis in the usual format, and you can see the improved second half comparable sales performance across all regions. Moving on to the income statement and staying with [ fair ] changes at constant exchange rates. Gross margin was down 470 basis points year-on-year, largely due to actions taken to address our inventory overhang. As expected, the inventory exit headwind increased into the second half. Overall, our inventory actions accounted for around 300 basis points of the full year decline. As already mentioned, we delivered GBP 24 million in OpEx savings from our cost savings program initiated in the first half, with net operating expenses down 3% for the year. Adjusting operating items amounted to GBP 29 million. These relate to the existing cost savings program as well as some initial costs incurred to deliver our expanded program, which I'll come on to shortly. The net finance charge was GBP 63 million, of which GBP 49 million was the interest charge on lease liabilities and GBP 14 million was other financing interest. The additional year-on-year charge was driven by higher leverage and a higher cost of borrowing. Despite the lower operating profit year-on-year, free cash flow was GBP 65 million, similar to full year '24. This reflects the significant actions we've taken to protect cash flow during the year. First, our working capital inflow was GBP 75 million, driven primarily by our lower inventory levels as we addressed our overhang and tightened our buys for upcoming seasons. Second, capital expenditure was GBP 151 million with around GBP 80 million of this invested in the store network. Third, we paid the dividend for fiscal 2024 of GBP 152 million. We took the important but difficult decision to suspend dividends in order to maintain a strong balance sheet and enable investment to support Burberry's long-term growth. In June, we strengthened our long-term capital structure with the successful issue of a new GBP 300 million bond, which has increased by GBP 150 million to GBP 450 million in the second half. We closed the period with net debt of GBP 30 million or GBP 1.1 billion, including lease liabilities. At the end of the period, net debt to adjusted EBITDA was 2.3x. We remain comfortable with our liquidity and headroom and are focused on returning to a more normalized position organically through actions we are taking to rebuild profitability. We continue to make investments that are completely aligned to our Burberry Forward strategy. We're investing behind our journey to reignite desire, restore growth and get Burberry back on the path to sustainable value creation. We will continue to protect investment in consumer-facing areas, investing a high single-digit percentage of sales in our brand while looking to maximize our return on investment. In the retail network, our investment is targeted towards amplifying our most iconic categories. For example, we're rolling out the Scarf Bar that you see here to 200 stores across our network. We'll also be making a significant second half investment in our U.K. manufacturing sites to upgrade operations and support innovation as part of our renewed commitment to made in the U.K. And we'll also be making further investment in the U.K. with a new showroom at our headquarters here in London. And finally, we will ensure that we have the right capabilities for data-driven decision-making to be able to operate more efficiently and create value as we return to growth under Burberry Forward. As we said in the release earlier today, over the past few months, we've undertaken a reassessment of our cost base. We've announced an expanded cost program, which, together with the cost savings previously announced, will deliver around GBP 100 million of annualized savings by full year '27. Josh will talk more about how we're organizing for growth later, but the key areas of focus are shown on the left-hand side of this slide. We're changing the way we work across the organization. This involves a simplification of our regional structure and a rebalancing of our central and regional responsibilities to reduce duplication and accelerate decision-making. Throughout our retail network, we're introducing our new Retail Forward operating model to manage peak traffic and enhance our customer experience. We're also making changes to our U.K. manufacturing operations to align with Burberry Forward and ensure that we can continue to manufacture our heritage Burberry trench coats in the U.K. for generations to come. And finally, we've reassessed our contracts and third-party relationships to drive procurement savings, particularly across the key areas of IT, logistics and architecture. The chart on the right side sets out the financial implications of the programs in terms of phasing, financial benefits and costs to achieve. These one-off costs, which are largely cash are expected to total around GBP 80 million across both programs, of which GBP 20 million -- GBP 29 million was incurred in full year '25, as signaled earlier. These are difficult decisions, but are critical as we position Burberry to grow and rebuild profitability. Turning now to the outlook for full year '26. We are positioning the brand for a return to sustainable, profitable growth, supported by cash generation and a strong balance sheet. We will deliver around GBP 40 million incremental cost savings in the year, bringing total cost savings in full year '26 to GBP 80 million annualized. These savings give us the ability to make the right investment in Burberry Forward and protect our consumer-facing initiatives, whilst also giving us another lever for mitigating potential tariff impacts and managing macro uncertainty. As we start our first full year of Burberry Forward, we remain confident we can deliver an improved performance and make progress in driving long-term value. To help you with your modeling, in full year '26, we expect retail space to remain broadly flat and capital expenditure of around GBP 130 million. As regards to wholesale, we expect a mid-teens percentage revenue decline in the first half. While we're encouraged by our key wholesale partners' confidence in our new direction, we continue to operate in a challenging environment with the channel undergoing a structural decline across the sector. Our goal is to have a smaller, better quality wholesale business going forward. Finally, currency is expected to be a headwind of around GBP 55 million on revenue and a headwind of around GBP 10 million on operating profit, based on the 2nd of May spot rates. You can find more detail on this in the appendix to this morning's statement. Overall, we see this as a year of stabilization. Our focus in full year '26 will be to build on the early progress we've made in reigniting brand desire as a key requisite to growing the top line. We expect to deliver margin improvement alongside a continued focus on simplification, productivity and cash flow. And with that, I will now hand back to Josh.

Thank you, Kate. As I said, when we met in November, turnarounds take time, and luxury is an industry with long lead times. While we are still early in our journey, where we have seen strength over the last 6 months reaffirms my belief that we have the most opportunity where we have the most authenticity. I believe more than ever that Burberry can return to being a high-performing luxury brand. We have all the attributes to do so, and we are well on our way. We have an original purpose. We have a savoir faire in a core category. We have brand codes that allow us to extend beyond our core. We have the spirit of our country of origin. We have a brand expression that balances heritage and innovation, and we have broad universal appeal among luxury consumers. This is a business that had GBP 3 billion in annual sales with a 70% gross margin and an operating margin in the high teens in the recent past. I know we can achieve that again and more. In November, we set out our Burberry Forward strategy. It's our strategic plan to reignite brand desire, improve our performance and drive long-term value creation. Since then, we have moved at pace to execute this plan. The immediate interventions that we have taken to start addressing our product and marketing have generated a positive shift in our brand sentiment, starting in Q3 and building momentum into the new calendar year. While it will take time to build from targeted quick wins to sustained business results, we are encouraged by what we are hearing from our customers. Clearly, the external environment has become more challenging since mid-February, but the leading indicators we are seeing reinforce our conviction that our strategic plan is the right path forward. Our focus in the year ahead is on reigniting desire. Everyone in the company from our design team to our colleagues in stores and warehouses has a role to play in delivering our vision. While we are continuing to review opportunities to streamline our operating model, evolve our ways of working and realign our cost base, our overall goal is to grow the top line, and therefore, we will be protecting investments in our consumer-facing areas. Now I will share with you our progress to date on the Burberry Forward strategic pillars. Starting with Timeless British Luxury. Throughout the second half, we have focused on balancing heritage and innovation across all consumer touchpoints. When we met last, I said that the earliest and most visible impact of Burberry Forward would be in our marketing. As you know, we pivoted to a Timeless British Luxury brand expression with the first chapter of It's Always Burberry Weather and our festive campaign in Q3. These campaigns delivered an inflection in brand desirability and brand affinity. This momentum continued into Q4 with a positive response to the Lunar New Year campaign and the second chapter of It's Always Burberry Weather: London in Love. The shift in brand sentiment was further amplified by the Winter '25 fashion show. At the end of every fiscal year, we measure brand love and brand affinity. And at the end of fiscal '25, brand love was at the highest yearly score since fiscal 2019 and brand affinity was at its highest level since fiscal 2022, and this was driven by the significant improvements we had in the second half. Let me share some examples of how we are amplifying our brand, taking our message of Timeless British Luxury to the world's most relevant stages. First, our Winter '25 show at the Tate Britain was met with an overwhelmingly positive response across media and social channels. With earned engagement increasing 77% versus winter '24, and earned reach up 76% and social mentions up 56%. Our 51 million viewers were up 68% on last year across digital and live stream, and the show was among the top 10 reviewed shows on Vogue Runway. This show was a clear demarcation from the past 2 years in terms of brand expression. There were also early signs of commercial enthusiasm with several of the most influential opinion-leading wholesale customers across the U.S. and Europe, reengaging with double-digit increases in their buys after significantly reducing their orders in the past 2 years. We all know that one fashion show alone is not enough to transform the trajectory of a multibillion-pound business. However, this show demonstrated Daniel's talent and the ability of our teams to deliver an extraordinary uniquely Burberry British version of Timeless British Luxury. Now our opportunity is to harness the power of the show's Timeless British Luxury brand expression to anchor a universe of products and experiences that reignite desire among luxury consumers. This intense focus on Timeless British Luxury is uniquely important for Burberry because it helps distinguish us in a luxury market dominated by French and Italian brands. In March, we announced our multiyear partnership with the Victoria and Albert Museum in South Kensington to transform their renowned fashion gallery. This is a milestone moment for British arts and culture, and we are very excited to work together to create a creative, immersive space that will inspire visitors for years to come. We also continue to celebrate our Britishness just this week with the launch of a new capsule collection and campaign celebrating our relationship with Highgrove, the private residents of Their Majesties King Charles III and Queen Camilla. This capsule was designed with our elite customers in mind. Our activations will also include extraordinary experiences for these elite customers from around the world to visit Highgrove here in the U.K., among other extraordinary global events. For those of you here in London, I invite you to visit our Regent Street flagship store, where we have a 360-degree activation of the Highgrove capsule. And for those of you who are not able to visit London, I'm going to share with you a video showcasing the collaboration. [Presentation]

While we're grounding all of our communications in a Timeless British Luxury aesthetic, we are maintaining our commitment to be culturally relevant on a global basis. In February, we launched the second chapter of It's Always Burberry Weather: London in Love, with a campaign heroing our iconic trench coats and the serendipity that in your Burberry trench, you just might fall in love in the rain. We continue to connect with our customers through culturally relevant moments, including Lunar New Year and High Summer. These moments feature exciting talent that are relevant for our customers around the world, such as Kate Winslet, Rosie Huntington-Whiteley, Joanna Lumley, Liu Wen, Jodie Turner-Smith, Jason Isaacs and Jack Draper. And just this week, celebrating Mother's Day in the U.S. and most countries other than the U.K., we celebrated with Jerry Hall and 3 generations of the Jagger family. Even global icons are leaning into our most beloved Burberry codes and showing that we have the most opportunity where we have the most authenticity. When the coolest people in the world who frankly can wear anything come to Burberry, they are selecting to wear our most beloved brand codes, our trench and our Check. Whether it's Kylie Jenner wearing a summer runway trench or if it's ASAP Rocky showing up in a Burberry scarf or Beyoncé and Blue Ivy in extraordinary Burberry Check outfits for the opening of the Cowboy Carter Tour, it's clear that Burberry is resonating with the extraordinary tastemakers at the pinnacle of popular culture. And no, I didn't get to go to the opening of the Beyoncé concert. Maybe next year when business is a little more stable, they'll let me go to that. Turning to product. We've made great progress, and we are excited about the pipeline ahead. In August, when I sat down with our design, merchandising and product development teams, we started to flesh out our new product strategy together. One of the insights was that while we had started to reintroduce items with all-over Burberry Check that appealed to our hedonist customers, we had opportunity to develop items with more subtle branding to appeal to a broader universe of luxury customers. The team made some immediate interventions to the collections in development, one of which was introducing product with Check trims. We are so excited to see the response to this product, which started arriving in our stores in February. This initiative is amongst our early successes. Check trims are one of our quick wins. Specifically, the addition of Check trims has helped us recapture share in Polo shirts, T-shirts and lightweight jersey across the globe, and our Check trim Terrace Sneaker has quickly catapulted to become one of our best sellers. The B Clip Bag, a luxurious leather hobo or suede hobo with a Check strap starting just under EUR 2,000 appeared on the runway in September and shipped in February. I am pleased to say that this style has nearly sold out in several regions, and we are placing reorders. This is the first handbag in a long time where we have had organic demand and scarcity in the inventory model. Our Autumn '25 collection is arriving in stores now. Here, we are focusing on rebuilding our outerwear core, introducing the next generation of quilts, downs and rainwear, which will be delivered to the stores over the coming months by the end of the summer to position us for the colder weather ahead. The collection also introduces additional bags with a good, better, best price architecture, including the Cotswolds and the Highlands lines, which are already in-store and are seeing a strong early response. For Winter '25, this was the first collection that the team designed with a Timeless British Luxury brand expression from start to finish. For the last 2 years, we had a runway brand expression that was unfamiliar and did not resonate. Now our pinnacle product conveys the same brand expression as our commercial collection. Our runway and commercial looks are complementary and have synchronicity on the shop floor and in our customers' wardrobes. For those of you sitting in the room, I invite you to look over to my right, where you see a selection of runway and commercial looks interspersed. And here, you can see how the runway sits at the pinnacle and yet inspires the entire offer. And we can have a game after the session where people can guess which pieces came from the runway and which pieces came from what industry jargon calls the precollection. The idea is you shouldn't be able to guess. They should all live holistically together, but that there should be this range of product in terms of function and price, all speaking the same language. In doing so, our stores and our website will be filled with a more universal representation of Timeless British Luxury in the spirit of the show anchored in outerwear and scarves. The runway looks will have a more focused buy, and they will sit alongside the broader collection, anchored in outerwear and scarves, as I said. In terms of pricing, our goal is to align our pricing with our category authority. Our Autumn and Winter collections deliver a better price architecture with the right balance of good, better, best pricing in a luxury context. I am incredibly proud of our design, merchandising and product development teams and their customer focus. It's hard to imagine that it was only 9 months ago that we said we would -- or 6 months ago to all of you, that we said we would put the customer at the center of everything we do and put the creative and commercial parts of the business together. Across our pinnacle fashion show and our broader seasonal fashion collections, we are now developing product that caters to all 5 of our customer archetypes at a range of price points and functions, but with a singular Timeless British Luxury brand expression. Moving to distribution. Here, we're aligning our product and customer strategy. We're making good progress here. Our stores, as you know, already have prominence, and our goal is to drive productivity and profitability. One of our key initiatives is to drive sales densities. We will have new fixtures to hero our core categories, scarves and outerwear in more than half of our stores by the end of this year. As Kate mentioned, we're continuing to optimize our wholesale channel with a focus on increasing our visibility in high-quality strategic accounts. We also use this presence in some top stores around the world like [ Eton ] and Selfridges to highlight our commitment to sustainability through our circular initiatives like ReBurberry. And in outlet, we are using advanced analytics to drive higher AURs. In e-commerce, actually, there's a lot of excitement in e-commerce. And here, we continue to enhance our site experience to accelerate growth. I am incredibly pleased that our e-commerce business has returned to growth in the second half of this year after 3 years of declining sales. Here is an example of how we have increased our store density with new props and visual merchandising. On the left, you see a vignette in our Bond Street store, where the earlier merchandising strategy was fairly stark and minimal. On the right, you can see a richer and more robust approach to visual merchandising with the reintroduction of mannequins and cross-merchandising to inspire our customers to build their wardrobes and build units per transaction for us. As you came into this room, you will have seen our Scarf Bar. This showcases our hero scarf category, where we are known for our many different options. Perhaps there is no signal of our change in direction in our store display as much as our approach to showing scarves, which previously most of the inventory was shown in drawers and behind the scenes, and often not in the prime location in the store. As I mentioned a moment ago, we will be rolling out these beautiful new Scarf Bars in some of the most prominent real estate within our stores, and I couldn't be more excited that we will get about -- the team is promising me that we will get close to 200 of these in stores by the end of the calendar year. This will help us to create product density in stores, improve conversion and drive volume while also distinguishing us from our competition and creating an only at Burberry experience. As part of the Scarf Bar rollout, we'll also be rolling out new options for scarf personalization, which we will have in time for the festive season. As I mentioned, on burberry.com, our performance has accelerated into growth with a step change in performance after 3 years of declining sales in this channel. We are continuing to improve the styling and customer experience online to appeal to a wider spectrum of luxury consumers while making burberry.com a more inspiring place to shop. For example, we recently worked with Snapchat to create a filter with our iconic Check umbrella to celebrate the unpredictable nature of the weather. And in China, we linked our site to the Moji Weather app as an industry first, which went live just at the start of the rainy season in Shanghai. Clearly, we can only achieve our goals by reigniting the high-performance culture that once existed at Burberry and putting the customer at the center of what we do. In order to get closer to our customers myself, I decided that I would not replace a Chief Commercial Officer and instead have our 4 regional presidents report directly to me. This is an example of how we are thinking about our organization at all levels. To support our teams, we are developing AI and data-driven decision-making capabilities, including advanced analytics to model price elasticity, marketing spend optimization and clienteling tools. As I mentioned, we have consolidated our teams here in London into this one building to enhance collaboration. I am particularly excited about reopening a London showroom in September, where our global retail teams will conduct their quarterly buying sessions. Since the last time we got together, we have brought design closer to the commercial parts of the business. Our leaders across the triangle, as I like to call it, are more closely aligned, and this is -- and a great example of this alignment is our Winter '25 show, which is the first one that Daniel and myself, along with Jonathan Kiman and Paul Price, who are seated in the front row, work together on that project from end to end. At the heart of Burberry Forward is our commitment to restoring a culture of creative and commercial alchemy. This morning, we announced organizational changes aimed at enhancing collaboration and increasing our agility with a continued focus on productivity and simplification. This will enable us to drive margin improvement while protecting our investment in consumer-facing areas. The majority of these changes are related to our office-based teams around the world. We will also be making some changes to our global retail network, where we are aligning our store team schedule to peak traffic. And we will be removing the night shift at our factory in Castleford. For many years, we have operated a day shift and a night shift at Castleford, which has resulted in overcapacity. This is no longer sustainable. The proposal to move to one shift is essential to safeguard the long-term viability of our U.K. manufacturing operations. I want to reiterate our commitment to continue the tradition of making our iconic Burberry Heritage trench coats right here in the U.K. for generations to come. In fact, as Kate mentioned earlier, we will be making a significant investment in H2 to upgrade the Castleford facility and drive innovation. As our business regains momentum, our ambition would be to scale our U.K. production over time. We continue to move at pace to execute our strategy. Most importantly, we have started to plant the first seeds to reignite brand desire. And at the same time, we are taking quick, swift action to stabilize the business and address the cost structure. These actions are necessary to optimize our operating model and will help us get ahead of some of the headwinds that are now impacting the industry. We are facing the impact of geopolitical uncertainty on consumer demand, but that only makes executing the plan we outlined in November even more important. We are focused on reigniting desire to drive top line growth, which will enable us to rebuild gross margin, expand our operating margin while delivering free cash flow conversion. While we are in the early stages of our turnaround, I am more optimistic than ever that Burberry's best days are ahead and that we will be able to deliver sustainable, profitable growth over time. Thank you. With that, I will turn it over to Lauren for Q&A.

Wonderful. Thank you. So we will be pleased to take your questions from sell-side analysts in the room and also those joining online. Antoine, I saw your hand shoot up in front of me. So I'm going to go to you, but then we're going to go back to the front row here to HSBC, and we'll work along the front.

It's Antoine Belge at BNP Paribas Exane. So can I ask 3 questions? Or am I limited to 2? So I'll get to 2. First of all, one of the pushbacks that we're getting from investors is that Burberry will become a bit like Moncler, a winter company because it's about -- it would be about scarves, it will be about quilts, it will be about protecting people from the weather. So how are you addressing this and to also make sure that you're strengthening your offering during this more, I would say, less cold times? Then the second question is about operating profit for this year. I'm sure you don't want to give guidance, but there is a consensus on your website showing, I think, GBP 134 million of adjusted EBITDA. That sounds very low to me. I think you announced there will be GBP 56 million more cost savings. I think out of the gross margin that you reported, probably 300 basis points are nonrecurring. So that would be another GBP 60 million. And then I think there were impairment tests included in the EBITDA of around GBP 30 million. So just that will already be around GBP 150 million. So am I missing reinvestment in the cost savings in certain areas? Or really are you taking a very conservative view on the top line this year? And I will leave it there, my 2 questions.

Why don't I start with the product mix, and then I'll let you speak about the operating profit expectations and reinvestment. So it's a great question, and I'm glad you asked about the weather because, as you know, I love this idea of connecting Burberry with our original purpose, which was to protect people from the weather. And that doesn't just mean cold weather, and it doesn't just mean that we're building the business around one iconic item of the trench coat. I think one of the most remarkable things in the history of Burberry was really during Rose Marie Bravo's era, where the iconic image was Stella Tennant in a trench coat. And then a few years later, you saw Kate Moss in a bikini. And if you see what's happening in Google trends and in social metrics right now, the inflection that we were getting around the Burberry scarf in November and December, you see that about the Burberry bikini as we go into the spring season. And clearly, we -- today, we don't have a plan for bikini bars in the stores. But I think that is one of the most visible ways that you can think about the brand that Burberry -- It's Always Burberry Weather. And even the fact that people need different types of outerwear is good for our business. We're less about one style and about using outerwear and scarves as the anchor to a wardrobe.

So if I take in chunks your assumptions there, Antoine. So yes, you're right on the website, GBP 134 million consensus, which just to reiterate, we're broadly happy with that. So first of all, on the cost savings, so it's GBP 40 million incremental cost savings on top of the GBP 40 million that we've already announced. So it's an incremental GBP 40 million. Yes, you're right. In the script, I talked about 300 basis points being the gross margin impact last year relating to inventory. So you're right, you should assume that, that comes back because we've done a really good job of clearing through some of the problematic stock. And then I think that the piece on OpEx, again, you're right, the nonrecurring impairment piece. We do, of course, have things going the other way, for example, other one-offs, the obvious one being things like performance-based payments and so on. So I think the way you should look at the cost base is pre the cost savings, it's a big fixed cost base. Inevitably, you've got some inflation in there, and then you take your cost savings off on top of that. So your building blocks are right. I guess the caveat here is that although we are really pleased with initial signs of Burberry Forward, it's early days and the backdrop is uncertain. And I'll be amazed if we get through this without talking about tariffs, but I am going to have to say whether it's the consumer backdrop plus uncertainty around tariffs. The cost savings obviously give us some mitigating levers there. I think the other point is you mentioned reinvestment. And I think you can see from the presentation today, what we are pleased about is that we've really got the firepower to invest in Burberry Forward, so particularly investing in those consumer-facing areas. So I think it's just too early given the backdrop, given the required investment to move away from consensus. But as I say, if I think about the year ahead and really what we're guiding towards, I think as the outlook statement says, this is a year of reigniting desire that ultimately will obviously lead to top line growth, significant margin expansion; yes, focus on costs, yes, but very much a year of stabilization. And I think I will just nod to the kind of quality of earnings piece, which I think is important. So less discounting in the top line and obviously, a much, much healthier margin.

Let's go to Erwan here and then we go down.

Erwan Rambourg from HSBC. I'll try 3, please. When you presented Burberry Forward in November, you said some brand codes, to use your words, were unfamiliar to consumers. I'm wondering if you're pretty much done with the cleanup, if you're happy with the sort of look and feel of what's in-store today? And related to that, if you're already back to sort of normal activity in outlets in terms of excess clearance. Secondly, to go back maybe to the margin question, but a bit longer term, your road map to going back to mid-teens and why not more? You said, Josh, from the 1% you just developed. Prior to today, you could have seen probably a good balance between gross margin expansion and OpEx leverage. But as you're announcing a deeper restructuring plan, without giving precise timing, obviously, or levels, how do you think about the balance between gross margin progression and operating leverage taking out from the cost base? I suspect what you're taking out is mostly OpEx driven. And then lastly, maybe a word on the U.S. I don't know how you think about U.S. consumer psychology. Bizarrely, it seems that some of your competitors are mentioning that despite the headlines, it doesn't seem that the American consumer is rolling over that much. But you had mentioned that you had seen a pickup with the aspirational cohort and I'm wondering if that's at risk, if that's at risk of reversing. Because obviously, aspirational consumers might be a bit more tender or a bit more vulnerable to what's going on these days in terms of inflationary pressures or recessionary fears or whatever else.

Okay. Why don't I take look and feel and the nature of the inventory in outlet, I'll give you gross margin, and then you can come back to me for the U.S. consumer. We're giving you 3. Don't read anything into that from the other banks. So in terms of the look and feel, look, I couldn't be more delighted with the progress that we are making. And I think the team has done an exceptional job of evolving the brand expression in a way that feels authentic and modern and relevant. And this is something that will continue to evolve over time. These things aren't static. But there were big voids in our assortment, things like Check trims, things like newness in bags with familiar brand signifiers like Check. And so now that we have newness in those categories, we have reasons to call customers and invite them in. And so that has been really gratifying because there are people who love Burberry brand codes, and we weren't giving them newness for several years. So there is pent-up demand for a Burberry that is recognizable that people love, that still gives them elements of surprising and delighting. Nobody wants their clothes back from 8 years ago. They want new things that celebrate the brand codes in fresh, new ways. In terms of the inventory clearance, last time when we were together, we said that we would be taking some incremental activity in both channels, frankly, over Q3. We now have that behind us. You can see from the inventory that we exceeded the guidance. And we said we guided to negative 7%. We came in flat. So the worst of the inventory, the really difficult inventory is now behind us and out of the system. At the same time, I'm also pleased that we got that done quickly, swiftly and that it happened to correlate with the time when the brand sentiment continued to progress positively. And so now we move forward into the Burberry Forward era.

So longer term or medium longer-term guidance, I mean, we've talked before about the building blocks. We've talked about getting back to the GBP 3 billion in terms of revenue that we were there not so long ago. Clearly, that will be driven by, as we've talked a lot about today, really reigniting the brand. I think then moving on to the gross margin piece, absolutely, the aspiration there is to move back to the 70%. And the 2 parts to that will clearly be really building on the momentum that we're beginning to see in full price. But clearly, a big part is going to be less discounting in outlet because as we've covered today, with tighter buys and better sell-through, clearly, you're going to see a better margin picture there, too. So I think that is -- you'll see a marked improvement in the year that we're in, but you should expect that to continue as well. And then finally on the OpEx piece. And you're right, the bulk of the savings will indeed be in OpEx. We've talked a lot about the people piece, which is a large majority of it. But there are other areas as well. We're incredibly focused on procurement, and that will be ongoing. And the other piece is even things like this building. I think initially, before Josh arrived, the thought was that we'd probably still be here and also the building that you came to across the road last time. Actually, everybody will be fitting into this building. So there are lots of other activities. I know the focus today has been on the reorg, but there are lots of other things going on. And that kind of absolute laser focus on the cost line will continue.

And then on the U.S. customer, one of the things we were really proud of in Q3 was having a positive comp in the U.S. And frankly, the quarter started out pretty strongly in the U.S. And then as you've heard and as you've read from both the credit card data and other of our peers who have reported, things got pretty choppy in February. The exit rate in March was consistent with -- on a fairly consistent on a global basis. But there's been a lot of news cycle, a lot of choppiness in the market there. Anecdotally, I will say, coming off of Mother's Day, we had a terrific Mother's Day in the U.S. And one more anecdote about Mother's Day, which brings us back to the inventory model and some of the initiatives happening in product is I struggled to be able to get my mother the bag that I wanted to send her for Mother's Day. So I want to send her a suede B Clip Bag and the U.S. was totally sold out. And of course, the President -- when I called Laura, our President in America, I'm like, you didn't buy enough and she said, you wanted me to bring scarcity to the inventory model? And I'm like, I cannot tell mom that. So I had to ship one from Europe to Los Angeles, but all in the name of good inventory.

Great. All right. Let's go now to the front row. So we'll go to Thomas and then Grace.

Thomas Chauvet from Citi. Three questions, please. The first one on wholesale and the guidance of mid-teens decline in the first half. Within that, obviously, there's a tough wholesale environment, but also some European doors closures that you've announced already last November. How long does that process go to? Does it go beyond H2? We've seen some luxury brands cutting wholesale doors in Europe for several years. And then when you think about the remaining wholesale partners and let's take your top 3 partners globally, what are they saying about the Burberry, the new brand image, the new product launch, the wider pricing architecture? And is that why the pricing -- wider pricing architecture give you more shelf space? And do you think, therefore, about a potential rebound in spring/summer deliveries in wholesale? Secondly, on CapEx, the budget has been reduced by double-digit percentage for the second consecutive years now. In what areas are you really reducing investments? And is GBP 130 million a good proxy for the medium term? And then finally, you've mentioned in the press release a more uncertain macro environment, no breaking news here. Are there other areas beyond the reorg simplification of the organization you announced today that you could look at to drive further savings beyond the EUR 100 million if the macro remains tough for the rest of fiscal '26? I'm thinking about sourcing, but also about maybe the store network review, both mainline stores and outlets.

Okay. Why don't I take wholesale and give you the other two? So on wholesale, I mean, as you know very well, it's a sector that has been in structural decline for a long time. And the situation in Europe is sort of a cycle because we exit doors, when our peers exit those doors. Sometimes they no longer become appropriate for us anymore because we have a certain criteria of who we like to sit next to and so forth. And so as others exit, the ecosystem is a bit diminished and then we exit as well. And so that phenomenon probably continues. I think a lot of what you're seeing in H1 versus H2 is that the -- it's the full year impact of doors that we closed during the last fiscal year. We get that overhang into this year. It's really about shifting from nonstrategic to strategic points of sale. As I mentioned in the prepared remarks, the exciting thing is that the customers we want to grow, who have been declining for 3 years are now excited about what they see. So to be clear, none of the winter collection has been sold to a consumer yet. So the only proxy we have for the consumer is the -- are the wholesale customers and the enthusiasm that we get in the media. But they came in expecting to buy less and saying, you know what, we're going to adjust our budgets and buy more because this is the Burberry that we've been waiting for. And I also heard that -- I'm just back from New York and spent time with some of our key partners in the States. And likewise, they need an important Burberry. Burberry fills an important role on their floors and for their customers. And these last couple of years, we haven't been filling that. So they are very excited to see the direction of travel, the direction of where we're heading. Does that give you some color?

So on the CapEx question, I mean, it was obviously pretty inflated when I arrived, but that was really just a function of the store refit program. And I think fair to say we're a good 60% plus through that. And whilst we will continue to refresh stores, the real focus now, as we've highlighted, is actually where can we really get the best return on investment, and that is going to be on areas like the Scarf Bars, the trench destination. So that's really our focus this year. In terms of the GBP 130 million, and is it enough? I mean, at least 50% of that will be on stores. Then inevitably, typically, it's going to be around 30% is IT and so on and 20% elsewhere. So I think we feel that we've got a good envelope to do what we need to do. On the cost piece, I mean, absolutely, in terms of further opportunity, I think as I answered just a moment ago, we will continue to be focused on cost. And obviously, that's across both OpEx and COGS. So yes, we will look everywhere right across supply chain and every line of OpEx. I think the piece I would say, and that's maybe why we're saying we're comfortable with consensus and a broad range. At the moment, we're very focused on investing and obviously, always protecting consumer-facing areas, but we do have levers to pull. So I think balancing the investment with managing the macro backdrop. Let's see how that pans out, and that's kind of how we will be able to manage that. So we feel quite comfortable. We've got -- still have levers to pull.

To Grace.

Grace Smalley from Morgan Stanley. My first one, Josh, would just be on the strategy. It sounds like today, overall, you feel quite reinforced in terms of the vision you outlined to us in November. Is there anything -- you mentioned how the strategy is always evolving and it's not necessarily static. Is there anything you can call out now versus November that has changed in terms of the way you're thinking, even if it's more -- any key learnings where you slightly tweaked the strategy so far? Then my second question, sorry, to come back on the current trading. Just given the comments on the macro choppiness, but then more recently, it sounds like you had a very strong Mother's Day and then you also have an easing comparison base in the quarter. Just any more color you can share in terms of a reasonable range of outcomes for Q1 like-for-like, given we are halfway through the quarter? And then lastly, on tariffs. If you could just help us with your U.S. sourcing exposure, how you are thinking about mitigating tariffs, any potential price increases? And just to confirm, Kate, when you're talking about comfort with the broad range of consensus estimates for next year, that does include any potential headwind from tariffs.

Okay. So I'll talk about the strategy, start on tariffs and then to you for macro. So it's early days in the strategy. So as I said, I am delighted. I've moved from being vaguely optimistic to being pretty confident, very confident that this is the right strategy for Burberry. And I'm sharing things with you in real time. So the Check trims just came in a few months ago. You're seeing the evolution of the marketing in real time, which is having a strong impact. What we haven't had yet is the full season that was developed within the Burberry Forward strategy. We haven't had that product hit the floor. So bits and pieces of the newness are hitting the floor and the customer is responding, but we haven't had the fullness of the proof points yet. So we're -- there's nothing that I see in the original strategy that is wrong, but we will learn. There will be things that work better than others, and we will learn that in the months ahead, and we will share that with you in real time. In terms of tariffs, to be clear, we have a relatively small exposure among our peers to the U.S. We have 19% of our business in the U.S. And we knew that something was coming in terms of tariffs. We didn't know how big. And frankly, we still don't know how big that impact is because it's a dynamic and it's changing all the time. I do think that we have some advantages here in that we have spent a lot of the last year understanding our price elasticity, understanding key prices, which we have to hit in certain categories, where our customer starts, where our customer sees value, where they don't see value. We've done a lot of analysis of this in the last year. And so we've taken some modest mid-single-digit price increases on a surgical basis, not a blanket basis, on a surgical basis in the U.S. And those may have happened anyway because of our learnings of where we need to stay sharp in the opening prices and where we have some room.

So on the current trading, yes, I mean, no surprise, I'm going to say, I'm not really going to comment on current trading in detail. I mean, I think what I will say, though, is that the quarter, if we look specifically at Q4, as Josh has alluded to, yes, it was choppy. So just like everyone else, we started quite strongly. February was mixed, but we did exit the quarter in line with that minus 6% that you saw at group level. And I think in terms of the retail equation since then, again, in line with everybody, traffic is challenging, but what we've been particularly pleased about is that our conversion continues to improve, which is what gives us confidence that certainly the work we've done on brand is resonating and the product improving. And then in terms of tariffs, I mean, yes, just to reiterate, it's dynamic. So the guidance, I mean, I think my comments on gross margin, obviously, all of that is pre-tariffs because we just don't know where that's going to land. But in terms of managing what ultimately ends up being the impact, yes, I think we are match fit to be able to do that, whether it's the -- as we've talked about the cost savings that we've got, some of the pricing initiatives, the work that we've been doing across the business, I think. So assume that we're comfortable with consensus, it does include wherever tariffs ends up.

Great. Okay. Let's go to Piral, then Louise. And then I know, Carole, you had to head up for a while, so we'll go to Carole after that.

Piral Dadhania from RBC. Three questions in customary form. The first is on the price repositioning. Joshua, you said you're ready for autumn/winter to deliver product at a good, better, best architecture. Can you just remind us whether you still expect to see a mid-single-digit drag to the like-for-like through fiscal '26? Or has that changed at all? The second question just relates to the cost review and the additional cost savings you're anticipating for the next 2 years. It doesn't sound like there's any indication or appetite to reduce the overall store count. And we hear from investors that 420 stores for Burberry is quite high relative to the revenue base. Could you just help us understand the logic as to why you believe that that's the right store number and whether there's any intention to change that going forward? Thirdly and finally, just a question on the customer profile. Joshua, you talked about putting the customer at the center of everything you do going forward. Makes a lot of sense. Could you perhaps just help us understand how the customer demographic is changing, if at all? Are you recruiting new customers into the brand? Are you doing a better job of retaining existing customers? And what is the approach in relation to VIC customers?

Okay. So in terms of the good, better, best pricing, so we are rolling that out now. And where we are rolling that out, we are seeing success. So one of the easiest places to look at it is in handbags, where we spent a lot of time and energy and money, designing and producing and marketing very, very expensive bags at pinnacle pricing. And we sold some of them, but the juice wasn't worth the squeeze on that and kind of realigning the good, better, best in bags has been successful. And so we're starting out with scarcity in the inventory model. And trying to see what the level of demand is, and we're pleasantly surprised because that is not the biggest focus category for us. In terms of linking that to guidance, I don't think we've given a specific guidance on a number in terms of the comp. All of these things that we're doing to reignite desire are as a requisite to top line growth. And as I said, that is -- we're all focused on doing everything that we can to drive the top line. In terms of the store count, to be clear, in the normal course of business, there will be stores that open and there will be stores that close. So there are a handful of stores that will close this year, that are broadly replaced in the store count with the handful of stores that open. We couldn't agree more that our stores do not have the productivity that they should have. And we're taking efforts to drive productivity in the stores. And so you can see our approach, and it's one of the reasons why I showed that visual and have the Scarf Bar here. We're not making effective use of the real estate. The stores are in really good shape because we invested in them recently. But they're not necessarily set up to be the best showcase to sell a lot of product. And so a lot of our efforts this year are really focused on both the art and the science of visual merchandising and driving more productivity from this network as we're ramping up the marketing investment, bringing more customers in and so forth. We're -- right now, as Kate said, the traffic has been tough. The conversion is good. So if we have people in the stores, how can we wardrobe them more and how can we romance them more through the way we're showing the product. That's how we're thinking about that. But there will be some stores opening, some stores closing. In terms of the customer profile and the demographic change, here, we -- I showed the 5 customer archetypes. We were over-indexing on what we call the opinionated customer in our communications. So our communications prior to the Burberry Forward era were almost entirely focused on the opinionated customer, the most fashion-forward niche customer who might be shopping Phoebe Philo or another really cool niche brand. For the multibillion-pound business that we have and the customer base that we have that has historically been shopping at a range of luxury price points, that type of marketing wasn't enough to sustain this type of business. And rather than having the product for the other customer segments, the investor customer segment, the conservative customer segment, the aspirer and the aspiring customer rather than having that product kind of as an afterthought, we still had a little bit of that in our stores, but often it was in the back room or in a drawer. Now it's being designed holistically as one brand. And I think you can start to see the impact of that. You're starting to see a little bit of it in our stores now. And as we head into the autumn and winter, you'll see that more fully. Does that help explain it?

Louise Singlehurst from Goldman Sachs. I wondered if I could just follow up on the store densities. And obviously, that's a reference that you made several times during the presentation, Josh. But I suppose what we can't see is obviously what's to come for the brand. Can you just talk about the product and the pricing, the entry, that good, better, best to high end? Obviously, there's good feedback on the Burberry, the Check trim product that's coming through. I mean, should we be expecting more product of the higher volume category going through those stores, the things for us to look out for externally is we're looking in, in terms of progress being made? And then my second question for Kate. Just thinking about that GBP 100 million, there's obviously a lot of hard work and sweat and tears going on behind the scenes. But in terms of the fixed variable, obviously, we think about the 80-20 dynamic now, when we roll forward to 3 years' time, should we be thinking there will be a little bit more variable in that overall proportion? And then just my final question, if there's any comment today on the dividend. I know there's a small dividend coming through full year '26, looking at consensus, but any feedback or thoughts from the company on that?

So in terms of the product mix, as I said, we're sharing it with you in real time. When I look out into the universe over there, we have a mixture of -- and again, I'm going to use bags as an example, even though it's not our most important category. We have a mixture of our new Highlands Group, which is a canvas group and the Check tote on the front there. That item is -- the small version of the shoulder bag starts at EUR 990. The large version of the shoulder bag, I believe that's the large version is EUR 1,350. So that's an easy canvas bag. You have the B Clip Bag, which is around EUR 1,950 and then you have some beautiful runway pieces that are well over [ EUR 2,000 ]. And so yes, we are going to have some more volume items around EUR 1,350 that will be there. I think what you're seeing in the progression of the seasons is you have the Check trims, which was launched during the spring season. So that's our peak for Polo shirts and T-shirts and bikinis. And so those naturally have a lower price point. But then you'll start -- I was just upstairs and saw something for almost a year from now, and you'll start to see beautiful Check trims on Made in Scotland knitwear, which will be pinnacle price, but also for someone who wants more subtle branding. So these things are in evolution. And what is so exciting for me as a merchant is seeing the way the creative and product teams are working together and are bringing the same, if not more, energy to finding these innovative ideas for our customers for each of those segments and not only for the opinionated customer segment.

Louise. So yes, on the cost savings piece, you're right that the bulk of that or a large percentage of that will come off the fixed cost base. At the moment, we're about 80-20. But in the end, it's GBP 100 million on a large cost base. In the end, we're a retailer. So we're always going to have the bulk of that would be fixed. So it will shift a little bit, but not materially, I would say. I think I imagine we'll still be using the kind of 80-20 as a guide. But just to reiterate what I've said earlier that we will continue to have a kind of laser focus on that cost base. On the dividend, I think at the moment, and I hope today, we were very clear on that, that our focus really is about investing in the business. And whilst we absolutely recognize the importance of the dividend to our shareholders and over time, the ambition is absolutely to reinstate the dividend, but I'm not anticipating doing that this year in FY '26.

Great. Let's do Carole and then Maria here.

Carole Madjo from Barclays. Three quick questions from me, if I may. I guess the first one back on brand heat. You talked about you having the highest level of brand love and brand affinity since COVID. Are you seeing similar trends across the globe? Or are there some differences between your key regions? And I'm also thinking about China. Are you here as well on track in terms of how the brand is much more now working with the growth of consumers compared to the other key markets that you are covering? That's your first question. The second one is about Europe, EMEIA and mostly about the trends you have been seeing between domestic versus tourists. Are there here any difference of the growth pattern? And again, back on the tourism part, are there any kind of change of who is mostly coming to Europe being the key shopper compared to the past few quarters? Any more Chinese coming in, less American, anything like that? And the last question quickly was around outlets. You talked about outlet before. Can you remind us how many outlet stores you have across the globe, where they are mostly located? And if you're happy with the amount of outlet stores you have or if you expect any change going forward?

Okay. In terms of the brand sentiment, so the tracker that we have is a global tracker. So the brand metrics are similar around the world, and we are seeing that in China as well as the west. I quoted some things about Google searches and so forth, which I guess has a little bit more of entirely western orientation. We also saw the same inflection in China around the red Burberry scarf, particularly around the Lunar New Year period. What we were seeing about Burberry Check in the west, there, we had a Chinese actress who was wearing a red Burberry scarf as part of the capsule. And we had scarcity in that inventory model, too. And that was unintended scarcity in the inventory model because it just took off and we ran out of that particular red on that particular model. But that was consistent with what we saw in the west in terms of the inflection on the social media sites. In terms of domestic versus tourists in EMEIA, like everyone, we have been seeing weaker trends from tourists, and the domestic customer has been more resilient. As we've said, traffic has been challenging, but the conversion has been strong there. Relatively speaking, American tourists have been appearing in London and Paris more in the last 6 months. And so we continue to see that. And finally, in outlet, we have broadly about 13% of our network in outlet stores, and we're effectively comfortable with that. We closed 2 stores in the last fiscal year. We'll be continuing to look to optimize the channel going forward, but nothing specific to share beyond that at this point.

Great. And then just one final one from Maria, and we'll close Q&A after that.

It's Maria Meita from Bernstein. I have 2 questions. Do you see an opportunity to rightsize or trim maybe some of your most expensive flagship store in the key locations? And then the second one is on beauty. As more of your peers are entering the category, is there a particular strategy in that category, more growth runway?

Yes. I mean, I think it's a good question about trimming the flagship stores. As I mentioned, in the normal course of business, there will be some stores that open, some stores that close, and we will continue to be looking at the network. Today, we don't have a store closing program per se. What we did announce today in regarding the retail network is important, though, in terms of realigning our teams in the fleet, so that we can offer the best service at peak traffic times. So when we have customers who spend longer with us, who were wardrobing more. And so that is important for us. I am glad you asked about beauty. Because beauty has been a shining star for us through our license partner, Coty, which has been doing a great job of reaching a broad audience and a younger audience. And I think we have opportunity in our stores to -- now with a broader price mix of product to actually pick up some customers who may have discovered Burberry through the fragrance business. And the past few years, we really haven't had as much focus on access products. And now with access products like even the beautiful candle we do or beautiful scarves, our stores are going to be more welcoming to those customers who have discovered Burberry fragrance. Kate, I don't know if you have anything to add on either of those?

Well, I think particularly the beauty piece. I mean, let's face it in a really tough year last year, we saw really impressive growth in beauty. So just to reiterate, definitely an area we'd like to capitalize on.

Great. Thank you very much. So that concludes our Q&A. I'm now going to hand back to Josh.

Well, I'd like to conclude just by thanking all of you and especially thanking all of my colleagues around the world who have been working very hard to deliver the Burberry Forward product, marketing and the overall turnaround. Even in such a dynamic environment, I am incredibly optimistic that Burberry's best days are ahead. Thank you so much.