Burberry's Weak Holidays Highlight Lack of Creative Direction

(Bloomberg) -- Burberry Group Plc warned that Chief Executive Officer Marco Gobbetti’s plan for a high-fashion facelift will take time after weak holiday sales underlined a gap in the company’s creative leadership.

The London-based trench-coat maker’s shares fell as much as 8.2 percent early Wednesday after Burberry said the new CEO’s plan to develop “it” handbags and higher-priced fashion won’t pay off until at least next year. It’s still not clear who will design those items, as the company has yet to name a successor to creative director Christopher Bailey.

“We’re at the beginning of our journey,” Chief Financial Officer Julie Brown said on a call. “We’ve got a lot of work to do.”

Burberry’s weak sales underline the urgency of finding a successor to design chief and former CEO Bailey, who’s preparing to leave the company after Gobbetti took the helm last year. The list of possible candidates grew Wednesday when LVMH’s Louis Vuitton said menswear creative director Kim Jones was stepping down. Burberry did not provide any updates on the search.

Designers Moving

Jones, known for mixing high luxury with hip streetwear influences, is one of several high-profile designers at LVMH-owned brands who have recently departed or are in the process of moving. Phoebe Philo, who worked with Gobbetti at handbag maker and fashion house Celine, left in December. Ricardo Tisci stepped down from Givenchy earlier in 2017.

Gobbetti, who took over as CEO last year, revealed plans in November to boost Burberry’s image with flashier stores and a focus on handbags. The shares fell the most in five years that day as investors digested the costs of the plan.

Burberry’s move upmarket will be driven by developing a range of luxurious accessories -- not from raising the price on trench coats or weeding out entry-priced products, Brown said on Wednesday.

Burberry left its guidance for full-year operating profit unchanged, saying it was on track toward the new CEO’s strategic goals. Retail revenue in the quarter ended Dec. 31 rose 2 percent on a comparable basis, only half the rate analysts estimated in a Bloomberg News survey.

Sales were held down by a decline in the U.K. after an influx of tourists taking advantage of the weak pound fueled gains a year earlier. Sales in the U.S., a persistent trouble spot for the brand, were roughly flat.

The weak quarter “should not come as a huge surprise given the exceptionally difficult U.K. comparative and the transition phase that Burberry is going through,” RBC analyst Rogerio Fujimori said in a note.

To contact the reporter on this story: Robert Williams in Paris at rwilliams323@bloomberg.net.

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III

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