Is a turning point for the luxury goods industry coming? Burberry announces a new strategy to turn around its predicament, with stock prices soaring by 22%

Burberry, a luxury goods company previously mired in difficulties, released its financial report on Thursday, showing a significant revenue decline of 22% and a shift from profit to loss year-on-year. However, the new CEO simultaneously announced a strategic restructuring plan and a £40 million cost-saving initiative, which stimulated the company's stock price to rise by 22% at one point, marking the largest single-day increase in the stock's history. Analysts reacted positively to the news, noting that this transformation could signify a "turning point" for the struggling brand.

Key Financial Data:

Revenue for the first half of the fiscal year: Burberry's revenue for the six months ending September 28 was £1.09 billion, slightly above analysts' expectations of £1.08 billion, down 22% year-on-year.

Operating loss for the first half of the fiscal year: Burberry reported an adjusted operating loss of £41 million for the six months ending September 28, better than analysts' expectations of £45 million, compared to an operating profit of £223 million in the same period last year.

Net loss for the first half of the fiscal year: Burberry recorded a net loss of £8 million for the six months ending September 28, compared to £219 million in the same period last year.

New CEO: Will Increase "Entry-Level" Products

Burberry's new CEO Joshua Schulman joined the company from Michael Kors in July this year. In a statement, he said, "Today, we are urgently taking measures to correct our course, stabilize the business, and return Burberry to a path of sustainable, profitable growth."

Schulman pointed out that in recent years, Burberry has repeatedly pursued "brand elevation" and raised prices, particularly in leather goods, which has evidently alienated customers and narrowed its market positioning to a more exclusive high-end consumer group. This strategic misstep has exacerbated the decline in global luxury goods demand, especially among Burberry's key consumer group—Chinese consumers.

"Now, we have a clear framework to reignite the brand's appeal, improve performance, and drive long-term value creation. Based on our solid foundation, I am confident that Burberry's best days are ahead."

In a conference call, Schulman expressed greater optimism about Burberry's future than ever before. He stated that the company has initiated a £40 million annual cost-saving plan aimed at clearing excess inventory, appointed new heads for marketing, product sales, and the Americas region, and increased the visibility of coat products in both in-store and online channels.

Schulman said that Burberry will introduce more low-priced "entry-level" products as part of its pricing strategy adjustment. He noted that Burberry has the strongest pricing power in coats, while its pricing power for handbags is weaker. However, Schulman indicated that he does not intend to position Burberry in the low-end market but hopes to "gain authority" in categories beyond coats by offering high-quality, reasonably priced products He pointed out on the phone that Burberry is suitable for pricing handbags below €2,000 (£2,105), rather than trying to push prices to more than twice that of the company's best-selling products as it did in the past two years.

Schulman also stated that Chinese consumers will gradually return after the current market downturn, adding that Burberry has "all the conditions" to become a global luxury brand.

As part of stabilizing the business, Schulman also plans to improve store operations, "rebalance" the product range for online sales, and "reignite a high-performance culture."

The announcement of the restructuring plan spurred Burberry's stock price in London to surge by as much as 22% on Wednesday, setting a record for the largest single-day gain, ultimately closing up 18.68% at £8.68. However, the stock is still down 38% year-to-date.

Analysts are Optimistic

Burberry's poor performance comes amid an overall slowdown in the luxury goods industry, with the personal luxury goods market expected to shrink by 2% this year.

Major luxury goods companies have seen their stock prices perform poorly, with luxury leader LVMH down 22% year-to-date, Kering down 46% this year, and only Hermès performing well, maintaining nearly a 4% increase this year.

Like other luxury companies, Burberry has been affected by declining luxury demand, but the company has lagged further behind in the overall industry slowdown, with its stock even being kicked out of the FTSE 100 index.

However, Burberry's surge on Wednesday also lifted other luxury stocks, with LVMH up 1.7%, Hermès up over 1.9%, and Kering up over 3.7%.

Wall Street analysts are also optimistic about Burberry's restructuring plan. RBC Capital Markets analyst Piral Dadhania stated that the restructuring plan, which has been in the works for a long time, should allow the brand to focus on its strongest areas.

"The strategy we've been waiting for is to focus on traditional and outerwear products, which we see as more authentic and advantageous in categories with less competition."

Quilter Cheviot consumer goods analyst Mamta Valechha described it as "a turning point in this difficult period." Citigroup's head of luxury equity research, Thomas Chauvet, stated that he expects to see "significant changes" in product design, range selection, pricing structure, distribution, and communication, while still maintaining the positioning of a global luxury brand.

Third Bridge analyst Yanmei Tang welcomed the shift towards high-end luxury on Thursday but believes the overall success of the strategy largely depends on Schulman's ability to align his vision with the creativity of the company's designers.

"Burberry can draw inspiration from brands like Louis Vuitton, balancing high-end art collections with affordable core products, placing its British heritage at the core. The success of this strategy will depend on the coordination between Schulman's business acumen and the creative vision of the designers." Bernstein raised its rating to "Outperform" at the end of last month, stating that Schulman's appointment indicates the company is "moving in the right direction." HSBC subsequently made the same adjustment