Burberry unveils £40m cost-cutting plan as it swings to £53m half-year loss

Joshua Schulman, chief executive, outlined that the recovery plan will involve enhancing the business's website and in-store productivity, as well as revising pricing

Burberry has initiated a £40m cost-cutting scheme in an attempt to revive the company following a continued decline in sales during the second quarter.

Joshua Schulman, who took over as chief executive in July, stated that the company needs to concentrate on "productivity, simplification and financial discipline". The fashion giant reported a loss of £53m for the half-year ending September 28, a significant drop from the £223m profit recorded during the same period last year.

Revenue also decreased by 20% year on year to £1.09bn, leading the London-listed firm to suspend its dividend payments to shareholders. Schulman outlined that the recovery plan will involve enhancing the business's website and in-store productivity, as well as revising pricing.

He further added that the company, established in England in 1856, should focus on popular products like outerwear and cater more to its core customers. In a strategy update on Thursday, Burberry admitted that it had prioritised modernising its brand "at the expense of celebrating our heritage". It also acknowledged that its "pricing, particularly in leather goods, did not always align with our category authority. Consequently, Burberry’s offer was skewed to a narrow base of luxury customers".

Burberry has been grappling with a stagnant market in the luxury sector, with its crucial Chinese market being particularly affected. Sales in its mainland China stores dropped by 24% in the first half, with the rate of decline increasing in the second quarter.

Mr. Schulman revealed: "Our recent underperformance has stemmed from several factors, including inconsistent brand execution and a lack of focus on our core outerwear category and our core customer segments.

"Today, we are acting with urgency to course-correct, stabilise the business and position Burberry for a return to sustainable, profitable growth."

The brand's chief financial officer, Kate Ferry, sidestepped queries concerning potential redundancies linked to their cost-saving measures, explaining that it has thus far "been about changing ways of working and more efficient ways of working". Commenting on the new government policy, she disclosed that the increase in employers’ national insurance contributions "had an impact", without further elaboration.

In financial updates, Burberry has recently dropped out of the FTSE 100, as its share value hit a low not seen since 2009 earlier this year. Share prices received an unexpected boost in recent weeks amid reports that Moncler, which also owns Stone Island, was considering buying Burberry.

Nevertheless, no hint of such a takeover bid surfaced in Thursday’s interim results, and fresher whispers this week suggest that a deal is off the table. When quizzed on the speculation on Thursday morning, Mr. Schulman remained tight-lipped: "We obviously make no comment on speculation. We have a lot of opportunity ahead and there is a lot more we can do as a plc (publicly limited company)".

Kathleen Brooks, research director at investment firm XTB, commented on the company's challenges, saying it "still has a mountain to climb", highlighting the ongoing downturn in China.