By Saabira Chaudhuri 
 

Burberry Group PLC (BRBY.LN) reported stronger profits for the fiscal year, helped by a return to sales growth in the U.S. in the second half, amid signs that a turnaround engineered by its new chief executive may be starting to bear fruit.

Burberry is in the midst of a turnaround effort led by Marco Gobbetti, the former head of Celine, a small, ultra-luxury brand owned by LVMH Moet Hennessy Louis Vuitton SE (MC.FR). Under Mr. Gobbetti the brand has been pulling out of undesirable locations, pushing up prices in some areas, refining its product range, cutting costs and refreshing its brand in a bid to become what he describes as "firmly luxury."

Overall, for the year ended March 31, the luxury fashion retailer made a profit of 413.0 million pounds ($558.6 million) up from GBP394.8 million the year earlier. Revenue fell 1% to GBP2.73 billion from GBP2.77 billion, hurt by lower revenue from Burberry's beauty business which it sold to Coty Inc. (COTY) in October. Same-store sales rose 3%, helped by sales of a lightweight trench coat and a "car coat" it says sold well with men.

Burberry announced a GBP150 million share buyback.

The London-based company is looking to become a bigger player in bags, a high-margin area that's a major focus for brands like Prada, Louis Vuitton and Gucci, which have all been selling new shapes and lines this year.

Leather goods currently make up just 20% of Burberry's revenue. By comparison handbags make up about 75% of sales at Louis Vuitton, 45% at Prada and 40% of Gucci, according to Bernstein.

"We see leather goods and building out the architecture of our handbags as a critical part of our strategy," said Chief Financial Officer Julie Brown on a call with reporters.

Burberry in March began selling a belted tote bag it says was influenced by its trench coats, and is now rolling out smaller sizes to appeal to its core Chinese customers. The bag was made by an Italian leather goods firm that Burberry agreed to buy earlier this week saying the investment will allow it to accelerate its handbag offerings.

Burberry has also overhauled its senior management in recent months, naming a new creative head in former Givenchy designer Riccardo Tisci, a new U.S. head and a new chief commercial officer. Its long-time chairman John Peace will resign in this summer.

In the U.S., which accounts for more than a fifth of Burberry's global revenue, the company said performance had improved. Same-store sales at retail stores, which make up 80% of Burberry's U.S. sales, grew in the second half of the year.

"In retail in the U.S. we are seeing some very encouraging trends," said Ms. Brown.

However Burberry continues to struggle at American department stores, saying wholesale revenue in the U.S. declined by a high single-digit percentage in the year as it consolidates locations within some department stores. Ms. Brown said Burberry is still negotiating with department stores, which have historically marked its product down when not selling, sparking disagreement with the company which says such moves hurt the brand.

Burberry has pulled back on physical-store expansion as it works to improve sales per square foot. In fiscal 2018, it closed a net 20 stores in the fiscal year and now has 449 stores. For the current fiscal year, the company expects the pullback to hit retail revenue by 1%, saying it plans to continue to close and relocate stores.

 

Maryam Cockar contributed to this story

 

Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com

 

(END) Dow Jones Newswires

May 16, 2018 05:34 ET (09:34 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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