British luxury brand Burberry (BURBY) will shift further up-market and more regularly update its fashion range but its shares dived 11% as investors focused on the cost of new Chief Executive Marco Gobbetti’s plan.
The company, which announced last week that Christopher Bailey, the designer who turned Burberry into a global label, would leave next year, said it would cut sales to non-luxury stores, initially in the U.S., enhancing the brand’s exclusivity.
The company will bring in new fashion ranges each season.
But shares in the group fell by 11% by 9:24 a.m. GMT as the company outlined the cost of the transformation, including rationalizing distribution and refurbishing its stores.
“By re-energizing our product and customer experience to establish our position firmly in luxury, we will play in the most rewarding, enduring segment of the market,” said Gobbetti, who took over as chief executive in July after being recruited from French brand Celine last year.
Chief Financial Officer Julie Brown told reporters that total restructuring costs would increase to 110 million pounds ($144 million), from 60 million previously.
Capital expenditure would be 150-160 million pounds in the 2019 and 2020 financial years, building to 190-210 million pounds thereafter, the company said.
Burberry, known for its trench coats and camel, red and black check, has seen sales in China rebound, but not at the rate of some rivals.
The U.S., where Burberry has been hurt by a tough market for department stores, has been a weak spot for the company, and sales declined slightly in the first half.
Gobbetti unveiled the plan alongside Burberry’s first-half results, which saw revenue rise by an underlying 4% to 1.26 billion pounds, with comparable sales also up a better-than-expected 4%.
Adjusted operating profit rose 17% to 185 million pounds, it said, beating the market forecast of 167 million pounds.
Brown said the group’s new tropical gabardine trench coat and car coat had been snapped up by fashion-conscious shoppers.
Growth was strongest in mainland China, with a broadly consistent performance across both quarters, she said.
“Consumers responded positively to fashion and newness. Particularly in rainwear and small leather goods and bags,” she added.
The company said its revenue and adjusted operating margin would be broadly stable year-on-year at constant exchange rates as it implements the plan.
It said accelerated delivery of 100 million pounds of cumulative cost savings in the 2019 financial year and 120 million in 2020 would be offset by the costs of rationalizing distribution to non-luxury stores and investment in its range.
