British luxury fashion retailer Burberry (LON:BRBY) has seen its share price slip by more than 6% on the back of news that the company is planning to cut 500 jobs as part of its post-coronavirus recovery operation.
In a statement included in the company’s first quarter trading update, Burberry said:
“In Q1, sales were severely impacted by the drop in luxury demand from COVID-19 and we expect it will take time to return to pre-crisis levels with the resumption of overseas travel. We are encouraged by the improving trends in all regions and the promising exit rate for June”.
After reporting a 45% drop in retail sales worldwide during its first quarter ending 27 June – and a 75% fall in Europe and the Middle East – Burberry is attempting to streamline its services and cut costs of up to £55 million.
150 UK-based office jobs are said to be on the line as part of the restructuring plan, as well as a further 350 overseas roles. The move will affect about 5% of the Burberry’s 10,000 employees globally and 4% of its 3,500-strong UK workforce.
Burberry blamed declining tourist numbers during the peak of the pandemic as the cause for the 75% decline in sales across its Europe, Middle East, India & Africa stores, and a further 70% slump across its locations in the USA.
The Asia-Pacific region emerged relatively unscathed, with just a 10% drop in sales during the first quarter, while Mainland China reportedly saw a double-digit increase due to a ‘repatriation’ trend as Chinese customers chose to buy from home instead of abroad.
Overall, Burberry reported that sales have already begun to recover after reopening the majority of its 465 stores worldwide in June. Sales are still down 20% year-on-year, but the company is optimistic that it can make a full recovery.
Julie Brown, Burberry CEO, commented: “One of the good things that has come out of Covid is ways of working differently.”
After the widespread success of the government-backed work from home scheme, Burberry said that it would be looking to free up office space across the UK. The company’s London and Leeds headquarters are reportedly safe, but a number of head office roles across the country are set to be the first to go.
Manufacturing and retail jobs will not be affected by the move, Burberry said.
The company has already announced savings of up to £140 million, but The Guardian reported that CEO Brown has already expressed interest in reinvesting the savings in ‘marketing activities including pop-up stores, digital campaigns, events and improved store displays’.
Commenting on Burberry’s figures, Nicholas Hyett – equity analyst at Hargreaves Lansdown – told Yahoo Finance that the results were a “mixed picture”.
“Overall sales numbers are predictably ugly, but the pace of recovery is faster than we’d expected with a particularly stylish turnaround in mainland China. A 20% decline in June sales is painful but still a pretty good result all things considered”.
Nevertheless, Burberry’s share price has slipped 6.68% to 1,453.50p as of BST 13:53 15/07/20, trading at its lowest level since the start of the month and down by more than 30% over the course of 2020. The firm is currently valued at more than £5 billion.
InvestingCube reported on the company’s falling share prices and disappointing Q1 figures, but emphasised that it expects the iconic brand to ‘return to growth as the coronavirus pandemic fades’.
Short-term ‘significant volatility’ will likely continue to depress Burberry’s share price. However, with coronavirus vaccine development reportedly doing well and stores worldwide reopening to customers for the first time since March, the company will most likely begin to see some growth again in the coming months.