Burberry Group (BURBY) Q1 2017 Results - Earnings Call Transcript

Burberry Group Plc (OTCPK:BURBY) Q1 2017 Results Earnings Conference Call July 12, 2017 4:00 AM ET

Executives

Julie Brown - CFO and COO

Charlotte Cowley - VP, IR

Analysts

Elena Mariani - Morgan Stanley

Thomas Chauvet - Citi

Helen Brand - UBS

John Guy - MainFirst

Luca Solca - Exane BNP Paribas

Erwan Rambourg - HSBC

Warwick Okines - Deutsche Bank

Mario Ortelli - Sanford C. Bernstein

Julian Easthope - Barclays

Rogerio Fujimori - RBC Capital Markets

Melanie Flouquet - JPMorgan

Operator

Good morning, ladies and gentlemen, and welcome to the Burberry First Quarter Trading Update Analyst and Investor Conference Call. My name is Chech [ph] and I will be the coordinator for today's conference. Throughout the call your line will be on listen-only, however, at the end of the update, you'll have the opportunity to ask questions. [Operator Instructions]

I'll now hand you over to your host, Julie Brown, Chief Operating and Financial Officer to begin today's conference. Thank you.

Julie Brown

Thank you. And good morning and welcome to Burberry's first quarter trading update conference call. Before I begin, I would like to say how delighted I am to be working with Marco Gobbetti, now that he's taken up the role of CEO. Marco comes to Burberry with a wealth and luxury industry experience and I'm excited to be working alongside him and Christopher as we position Burberry for a great future.

I will make some brief comments on this morning's announcement and there are some slides to accompany the call available on the IR section of the website and I'll cover three main areas. First, an overview of our retail sales growth by region; second, our progress against our five key pillars; and finally, the outlook.

With me this morning is Charlotte Cowley, our Head of Investor Relations and we'll be happy to take your questions later on. So, first, our Q1 at retail revenue performance. Underlying revenue was up 3% at constant exchange rates and up 13% at reported exchange rates to £478 million.

Comparable sales were up 4% driven by volume, mainline footfall remained challenging, but this is offset by improvements in conversion. Timing is still footprint changes meant that our net space was down year-on-year, which reduced revenue by one percentage point.

Turning to retail comp performance by region. First, Asia was up for mid-single-digit percentage, improved from Q4 driven by Mainland China, which delivered mid-teens comparable sales growth as Chinese consumer confidence continue to rebound.

Hong Kong, where we are pleased full trends have improved, with growth in the numbers traveling Chinese customers entering the market. Third -- our third largest market in Asia, Korea, declined again as we continue to be impacted by the macro environment.

Second, comparable store sales in EMEIA grew at a high single-digit percentage. The U.K. continue to lead the growth albeit the sales trends decelerated towards the end of the quarter as we anniversary the significant depreciation in sterling in June 2016.

Similarly, across Continental Europe, spending from traveling luxury customers softened with particular weakness in Italy. And in the Middle East, it remained a challenging environment principally due to the macro situation.

Finally, by region, the Americas declined by a low single-digit percentage. The strong U.S. dollar again negatively impacted both local and tourist spending in the U.S. Conversion continue to improve due to a very successful Burberry private client program, which partially offset the decline in footfall.

By product in mainline stores, fashion again outperformed replenishment as we see in an industry increasingly driven by innovation. By category, accessories again outperformed led by bags, which were up by a mid-teens percentage in the quarter.

Customers responded positively to our new DK88 bag, which was our number four best-selling shape in the quarter. And we continue to have great success with our new tropical gabardine trench coat.

Looking ahead, we have a stronger product pipeline with the DK88 bags and a wider color range as well as new innovations in soft, outerwear, and leather building in the second half.

Now, I would like to update you on the progress against our five key pillars. First under product, with the industry being driven by fashion and newness, we have focused further on increasing the visibility of this in our products. We reduced our number of SKUs in the main market by over 10% on top of the 15% to 20% reduction last year.

Not only has this allowed more prominence to the fashion components within our collection, but it has also improved the consistency of product globally, enabled our stores to buy deeper, improving overall stock availability. We're also pleased that the transition of Beauty to a strategic partnership with Coty is progressing as planned and still expected to complete in October.

Secondly under productive space, conversion improved in all regions and spending from our top customers again grew, reflecting our investments in the Burberry private clients and expansion and customer value management program and increasing the numbers of appointments year-on-year.

We introduced a new PoS system in the U.K., which benefit our traveling customers through point-of-sale processing of VAT refunds. The rollout of this system will continue across EMEIA through the year.

Thirdly, under ecommerce, we are benefiting from our early entry into digital at three levels. First, our digital presence increased our marketing reach and engagement with the Burberry brand. Second, we were one of the first luxury brands to build a global ecommerce platform.

And third, by leveraging the wealth of data collected in recent years, we have significant analytical and customer intelligence to inform marketing decisions, enable us to deliver a more focused and targeted campaigns.

For example, the Burberry App is now launched in five countries and that technology allows enhanced interactions with our consumers and improved brand experience and benefiting from data, we're able to deliver a more personalized storytelling experience. With over 70% of our retail sales now influenced by digital, we will continue to invest and develop our omnichannel proposition.

In this quarter, our direct-to-consumer ecommerce business continued to grow. Mobile again took share, now accounting for 40% of direct-to-consumer revenues up from 30% last year and we, again, saw benefit of enhancing our localized Chinese site with sales more than doubling compared to the prior year.

Fourthly, under operational excellence, we are on track to deliver £50 million of cumulative cost savings this year as previously guided. The establishment of Burberry Business Services in Leeds is progressing on schedule and will begin to be operational from October.

We implemented a new product lifecycle management tool at the end of June that will enable commercial and operational benefits through the more timely development of product, increased automation and enhanced vendor and supplier collaboration.

And finally, under inspire the people, we launched an ambitious new five year responsibility strategy, creating tomorrow's heritage including the establishment of the Burberry Material Futures Research Group at the Royal College of Arts.

And we continue to strengthen the leadership team with new hires in the quarter in strategy and in Americas as well as adding expertise in technology and product matters as discussed with you previously.

And just to update you on our share repurchase program, we've completed the remaining £50 million of our initial £150 million buyback program and we will shortly commence the £300 million that we have committed to execute by the end of March 2018.

Now, turning to guidance, there's no change to our outlook for retail space or licensing revenue compared to May. However, we now expect total underlying wholesale revenue in the first half of full year 2018 to be broadly flat, reflecting less business disruption in Beauty than we previously anticipated.

In the second half of the year however, we expect wholesale to be negative. This reflects the transition of Beauty to a licensed business model and we also expect wholesale, excluding Beauty, to decline at constant exchange rates due to ongoing brand control.

On adjusted PBT, our guidance to full year 2018 at constant currency is maintained. However, taking the 30th of June exchange rates, we now expect currency to be a £25 million headwind, a touch less negative than the £30 million headwind based on exchange rates on the 28th of April.

And finally, in terms of outlook, while we are pleased with our performance this quarter, it is our smallest quarter and the comparative gets more challenging from the current quarter onwards in particular as we analyze the exceptional growth rate seen in the U.K. last year following Brexit and sterling devaluation.

In conclusion, in an industry increasingly driven by fashion, we are encouraged that our newest product is resonating well with customers. Our senior management team is now in place with Marco taking the position of CEO earlier this month and new talent recruited to complement our existing team.

We have much more work to do as we continue to focus on our brand, our product, and the execution of our plans to capitalize on the opportunities ahead.

And with that, Charlotte and I would now be very happy to take your questions. Thank you.

Question-and-Answer Session

Operator

Thank you, Julie. [Operator Instructions]

Our first question is from Elena Mariani from Morgan Stanley. Go ahead.

Elena Mariani

Hi, good morning all. A few questions for me, please. Firstly, on your regional trends, how would you explain your deceleration in Continental Europe? It was related to Chinese customers purchasing less? And which differences did you see across countries? You mentioned Italy being more difficult, but how about France and other countries? And overall, on a global basis, how did Chinese spending compared with your previous quarter, please?

Secondly, on the U.K., what exactly have you observed in the last couple of weeks? What is a more normalized level of like-for-like that we should expect from this country going forward given the very challenging comp base? And can you remind us of the curious versus local purchases place in these countries, please?

And finally, on your wholesale guidance, if I'm correct, it is unusual for you to give guidance on H2 early on in the year. Could you give us some more color around it? Is this reflecting a different view on wholesale distribution from the new CEO perhaps? And could you broadly quantify this decline. Are we talking about a low single-digit decline or a more meaningful one? Thank you.

Julie Brown

Okay. Let's take these questions in order. So, in terms of Continental Europe, the biggest factor in Continental Europe was certainly Italy. And here, we anticipate -- we haven't seen other people's results yet, but we do anticipate that there is some competition there coming from some of the brands where Italy is the home market. So, there's sort of a factor there.

The second thing is with regard to France, we did see a strong rebound in France in the fourth quarter of the previous year. So, probably because it was annualizing the terrorist attacks in France in the previous year to that. We did see a rebound in France. That has become more subdued in our first quarter effectively, which we believe is the macro trend.

And in terms of China, I can come back to Chinese spend. I'll come to Chinese spend globally and then reflect on the distribution. So, in terms of Chinese spend globally, we saw a very similar trend in the first quarter to that that we saw in the second half of the previous year.

So, very similar, we were confident about Chinese in terms of consumption levels. It continues to be positive. We've seen a continuation of the trend and it was broadly Q1 was the same as second half last year.

In terms of China and where the Chinese are spending, we've seen strength in Mainland China to be more pronounced than it has been regarding tourists, both in the U.K. and in Continental Europe.

So, moving on then to the question about the U.K. and the last couple of weeks in the U.K. Probably important to split the U.K. between the tourists and the locals. So, in terms of the tourists, what we saw is in the last couple of weeks in the quarter, because we were up against some very, very stiff competition -- comps, I should say because of the sterling depreciation, the U.K. decelerated relating to tourists expenditure because of those growth rates being very high in the previous period.

In terms of locals, the local population in the U.K. remained very strong. And in fact, increase during the course of the quarter towards the end. So, the local U.K. is very strong. The tourists, because of the comps, have weakened, decelerated at the end of the period.

And then finally, moving on to wholesale, as far as wholesale is concerned, we don't normally guide on the second half, but because essentially, we've got line of sight at the moment around about 70% of our order book, it closes in September. But because we've had an improvement in the first half relating to Beauty, we wanted people to be aware that we will continue to do brand control activities as we highlighted really with our full year results, we'll continue to do brand control activities in the second half, particularly in the U.S. and therefore, we do expect to see a decline in wholesale in the second half.

You mentioned this has to do with Marco joining the business, the answer to that question is no. This was something that we were embarking on as you know, over a number of years, and you definitely saw us doing it in full year 2017 and we'll continue to do that in the second half of full year 2018.

Elena Mariani

Thank you. Just a couple of follow-ups. Is it possible to quantify at these decline, are we talking about low single-digit decline, high single-digit, if possible? And then secondly, I didn't really understand the point about Italy and the competition from some local brands. Did you mention the fact that some local brands were stronger than other brands? Thank you.

Julie Brown

Okay. So, just to explain that, the wholesale second half decline, we would expect it to offset the upgrade that we've had in the first half. So, we've had an improvement in the first half and basically, we're saying we're expecting half two to broadly offset that. So, wholesale for the year, we expect it to remain broadly consistent.

Just coming back on Italy, what I was referring to really is some of the leading international brands where Italy is their home market, we do expect them to be stronger although we've got no results at this stage, so it's just really what we're expecting to happen. It's a very diverse market as you know, Italy and really nothing further to say on that.

Elena Mariani

Thank you very much. Very clear.

Julie Brown

Thank you.

Operator

Our next question is from Thomas Chauvet from Citi. Thomas please go ahead.

Thomas Chauvet

Good morning. Julie, Charlotte, I've got three questions, please. The first one on the improvements in LSL. Was it -- is it fair to think that it's just been driven really by the success of seasonal fashion innovation product, rather than replenishment. I understand product newness is key to drive footfall and conversion as you said, but I'm sure you don't want your higher margin classic heritage trench coats and scarf business to disappear, so how did these categories perform in the quarter? Are they still negative overall?

And secondly, I had a question on the outlet business. How much of your retail sales were generated in outlets in the first quarter? Or more broadly, where do they spend now? How did it grow versus your full price stores? My guess it's probably outperforming strongly.

I understand your outlets, it's a natural clearance channel nevertheless its growing nicely I think at industry levels. The store count of your outlets is also increasing, so it will be great to get some numbers and for you too as Marco Gobbetti is joining, to give us a view on the outlet strategy.

And finally, on currency and pricing with the dollar and Asian currencies having generally weakened versus the GBP and euro in the last three months or so, I was wondering whether you had any opportunity to bask on price increase in the U.S. and Asia later this year. Thank you.

Julie Brown

Okay. Thank you. Thank you very much. I'll take the like-for-like and the outlet, Marco; I think store counts, Charlotte can take, and then I'll come back on currency and the price. So, in terms of why the improvements in the like-for-like. We are very, very focused on retail excellence and production space, and we saw a good improvement in conversion, and retention improved through the quarter.

The other highlight is we've seen strength in accessories, so the bags component has done very well again in the teens growth. And we're also seeing strength in fashion and newness. So, we're really pleased about that. As you mentioned, we continue to have pressure on replan and heritage and this is because, really, the market is being driven increasingly by fashion and newness.

I think the other thing we're pleased about; we've got some new hires in the business. And whilst it's very early days, we are increasing the talent in the business through a new Chief Merchandising Officer. We've got Claudia Plant joining us from Net-a-Porter, et cetera. And it's early days, but we're starting to see an impact from some of the new talents mixing in with some of our existing talents.

So overall, we're pleased with the comp. But probably important to say as well that this is a small quarter and of the four quarters we were up against the easiest comparator base with this set of results. So, I want to be completely open and honest about that.

In terms of outlets, nothing particularly to say in terms of the growth versus the mainline. Clearly, our strategy is very much focused on the mainline and improving productivity of space. And Marco is joining the business as the new CEO, but -- and clearly, we'll look at the channel distribution across all the channels and how we use them.

I think the main focus really is to ensure that the wholesale channel is complementary to the brand and the image that the wholesale channel, and particularly in the United States, presents is consistent with our retail presence, and that's really our biggest focus when it comes to channel -- channel utilization. So, maybe Charlotte can take the stores, and I'll come back on currency.

Charlotte Cowley

Yes, the store numbers in the space Thomas, actually we closed one outlet this quarter. As you know, the plan as Julie said is predicated on focusing on improving the productivity to the mainline stores. So, in a net reduction in the number of outlets across of the fees and then in terms of the space piece, it's really just phasing there's really no change in our expectations in terms of space being pretty much unchanged by the end of the year.

Thomas Chauvet

Mainline stores, I believe that they're outperforming. Is it something you can comment on and elaborate really on what is driving the between the outlets and full price stores? If at industry levels that the consumers more and more reluctant to pay at full price be it in the wholesale channel or even in retail or even online. Is the outlet outperforming meaningfully mainline stores in Q1?

Charlotte Cowley

Thomas we never talk about the difference in performance of the outlet and the mainline. You've seen our comments that we're pleased that conversion is increasing in our mainline stores, retention is improving in terms of our customers returning and repeat spending for us in mainline stores, so that's clearly where we're looking to grow the business.

Thomas Chauvet

Okay.

Julie Brown

Just coming back on the currency. As you mentioned the euro as the 30th of June was down to 115 to sterling and the Chinese, you remember it was down to 880. We continue to review this as you know, Thomas, against our global pricing architecture on an ongoing basis.

We made some serious changes to prices last year. We've got the indices now. We indexed all the major countries against sterling, the sterling price, and we're broadly in line with where we want to be. There may be some adjustments later in the year, but it's going to be nothing in the order of magnitude that we saw in 2016, 2017 so nothing really to report on that.

Thomas Chauvet

Okay. Thank you very much.

Julie Brown

Thank you.

Operator

Our next question is from Helen Brand from UBS. Helen please go ahead.

Helen Brand

Hi, good morning. Just three questions for me. I guess first of all, from Marco's perspective, what's his first priority now he's taken over the CEO role for the next few months? And are there any early views from him on the Asian business that perhaps you can share with us.

Secondly, the online business clearly is growing pretty fast in Asia, helped by the website relaunched in Mainland China. Can you give us more color on the growth rates in the year and in the Americas? And do you have any plans to start disclosing this number given how channel is shifting in the industry at the moment?

And finally, in the release, you talked about newness in H2, which I think will be targeted across of the trench, scarfs, and leather. Can you give us any more detail around what we should expect in terms of newness in the second half and how that can drive comp? Thank you.

Julie Brown

Okay, thanks very much, Helen. So, I'll take the question about Marco and Charlotte's going to take the question about more color on the growth, Europe and Americas and then I'll take the newness, the newness and fashion point.

So, yes, I know that, spent quite a bit of time with Marco. I think he really feels that we've got great people with real energy and a commitment to change and we both have exactly the same impression joining Burberry New. There is something incredibly special about the Burberry culture and people's energy and commitment to change.

In terms of the areas that he's identified. I think we're all very focused on the newness and fashion, and we expect that to move more and more into our commercial product offering.

His focus very much in Asia is being on measuring stores are properly merchandised and laid out so that the customer can see the new product and have a true luxury experience. And we're also continue to be very focused on retail excellence ensuring that our staff have the appropriate training and also that we offer a consistently high level of service globally, even more so now, there are consumers so well, so well-informed. And likewise, we're also continuing on the agenda of simplification. Simplification is the way that's working and simplification is of the organization overall.

So, in summary, Marco has spent a lot of time with the Asian teams. He's been a very active member of our senior leadership team and being involved in the position in that forum. I know our Asian team have been very energized by working with him and his particular focus is in productivity, merchandising and also, the store concept and store layouts.

So, with that, I'll hand to Charlotte on the...

Helen Brand

Julie, may I just follow-up just quickly? You did mention the U.S. there in terms of priorities, is that something that Marco is going to be looking at going forward? And just in terms of that U.S., how is he thinking about the right distribution footprint in the U.S.?

Julie Brown

Yes, I mean I didn't mention the U.S. because he hasn't been able to go to the U.S. under the -- until he was becoming being the CEO, but I have to say that on his first day as the CEO, Marco went to the U.S. So, I think that probably tells you how important he sees that market so he's already visited our New York, our department stores and our offices in New York.

We see the U.S. as being really important. We expect the continuation of some of the things we've talked about with you already in May, in terms of ensuring -- we see wholesale is important to us. It's very, very good opportunity to introduce the luxury consumer to the Burberry brand because they can see multiple brands in the department store.

But at the same time, with the heavy discounting that's occurring in the U.S., we're very focused on ensuring that the inventory levels that go into the U.S. wholesalers, the sell-in and the sellout markets, we put a lot of emphasis on the data that we're collecting from our wholesalers to ensure that, that is the case, and we're also very keen to ensure that our brand is presented in a way that's consistent with the retail channel.

And I think Marco will continue to spend more time in the U.S., I'm sure and in Europe, which is the two regions he hasn't been able to spend time and to date. And we'll work further to the strategy on that basis. So, Charlotte, over to you for the second one.

Charlotte Cowley

Yes, so on digital and I think we're unlikely to strip it out of the number on its own, very much same continued focus on omnichannel as you know the stats we've been showing with you but that's definitely a good trend for our retail sales are influenced by digital, but clearly it's a much lower percentage of direct revenue.

Pleased that the direct-to-consumer business is growing and you can start to see the shift in terms of mobile now it's actually being a true channel there rather than just being new to research, the people are now shopping on mobile so seeing us continue to invest in that channel.

On regional performance, the Americas has certainly impacted as Julie has been articulating the standalone store business in physical retail as much as digital.

Julie Brown

All right. Just coming back on the final part of the question relating to newness. The focus, which will come up in the autumn is continuing to rollout the bag range with extending the DK88 range. So, we'll go in, into the market with the smaller bag. The DK88 at the moment is quite a large bag. We'll move into smaller bags and also a much wider color range and innovation around colors.

The second major area relates to soft, which is predominantly scarves. Outerwear is also going to be a focus, continuing to build the leather franchise from the second half. So, yes, we've got a lot of innovation coming your way. The wholesalers in looking at the main market, we're very excited about it and we'll continue to roll those out in November and possibly a little bit earlier than that. A lot of excitement around the showroom. The showroom was fantastic speaking personally having seen it is fantastic.

Helen Brand

Great. Thanks very much.

Julie Brown

Thanks Helen.

Operator

Our next question is from John Guy from MainFirst Bank. John please go ahead.

John Guy

Thanks very much Julie. Good morning Charlotte. A couple of questions please. First of all, just with regards to the LSL, can you split out the volume and value compared with the LSL, I'm sort of assuming that the bulk of the growing discount from volume over value, but just if you could provide the details, that'd be great.

And Julie, your comments around taking effectively more control over the wholesale distribution, new highlights in the U.S. and what is probably more work to be done, but could you also comment on Europe and I appreciate that the Asia business is more highly skewed towards retail, but is there anything within the wholesale channel there that needs to be looked at as well. I appreciate any sort of further comments to start with. Thanks.

Julie Brown

Okay. Thank you very much. So, in terms of like-for-like, the growth was all coming through volume. There was a small negative on price predominantly relating to the price reductions we took largely in Asia that we took in full year 2017. We don't give the specific split of price and volume, but basically, we have a small negative on price and overall, very good increase in volume and the like-for-like comp of 4%. As you know, space is minus one taking the underlying growth rate down to three.

In terms of wholesale distribution, the focus is very much on ensuring our brand, obviously our brand is our biggest asset and ensuring the brand is presented in a uniform way across the world.

So, no matter where it is in the world, where we see that occurring, we will take action. But in terms of by region, the big focus predominantly is on the U.S. because this is where we've seen how the discounting under presentation of some of those brands in the department stores where they will put them on racks, on top of elevators with discount signs over the top of them, we don't want to be tied up to consumer kind of activity, so it's really being predominantly controlling where we are with U.S. department stores to ensure its presented fairly and appropriately to the retail arm.

John Guy

So, Julie, maybe just on that, I mean if the wholesale in the U.S. is roughly just about just over 30% of the businesses, do you expect this to harbor over the course of the next three years? Can you sort of quantify the size of the rationalization within the U.S. wholesale that's likely to happen?

Julie Brown

Yes, the split in the U.S. at the moment is 70/30 and you did ask the question as well as Asia, where it's 90/10 in favor of retail. In terms of the U.S., we haven't put a specific number on it. It really does depend on the interactions and the -- I guess the level of consistency in terms of where the wholesaler wants take the business.

So, we haven't put a specific number on it yet, but we're clearly working with our partners to ensure that the brand is presented properly. I mean wholesale, as I mentioned on the call, wholesale is still a really important part of our business. It's still a really great entry point for the luxury consumer and we've got some great wholesale relationships. So, I think it's just going to depend how that all the develop alongside the U.S. macro situation.

John Guy

That's great. Many thanks.

Julie Brown

Thanks John.

Operator

Our next question is from Luca Solca from Exane BNP Paribas. Luca please go ahead.

Luca Solca

Thank you very much indeed. I have a specific question on the design partnership that you have with Gosha Rubchinskiy. I wonder how inspired you are and if you envisage more of that in the future to support newness and innovation.

Julie Brown

Okay. Thank you very much Luca. Yes, we were delighted. It's something that Christopher has been admiring his work for quite a while and I think we're always delighted to be offered the opportunity to be able to do that. It is really all about, I think using some of the traditional heritage of the Burberry check, but using it in a very innovative, succinctly about the reinvention of some of our core icons so we've been really pleased with how that collaboration has worked.

In terms of, we really like partnering with people with brands and companies that we admire and we've also done that without the digital initiatives for instance with Apple, Snapchat, and Twitter. And it's a really exciting time for design and creativity to allow these partnerships to build and to foster authentic relationships. We expect this collaboration with Gosha to be a one-off, but -- and the next real new collection will be coming in London Fashion Week with our September show.

Luca Solca

Understood. Thank you very much indeed.

Julie Brown

Thank you.

Operator

Our next question is from Erwan Rambourg from HSBC. Erwan please go ahead.

Erwan Rambourg

Hi, thank you very much for taking my questions. I was wondering if you can mention Korea, because obviously, Korea has been through a lot notably in terms of travel bans from China, but I believe that's been lifted and I'm just wondering if you're seeing a little bit of a pickup in Korea.

I have another question on Asia relative to the Hong Kong situation because things seem to be stabilizing for the sector and yourselves there. And I'm just wondering if that has positive margin implications relative to possibly rents coming down now after three and a half years of tough situation, hopefully the landlords are becoming a bit more reasonable.

And then thirdly, sorry to belabor the point that Thomas earlier was making, but obviously, I'm probably under the influence being based in New York now, and having to very recently enter your 57th Street full classification. What do you think is the appropriate footprint in terms of outlets versus full price? You're higher than the sort of Continental European brand in terms of footprint; obviously you are much lower than the value from any American brands. What's the appropriate level to be at and I think Charlotte mentioned you had closed an outlet recently. Where was that and what's the plan for the upcoming quarters? Thank you.

Julie Brown

Okay. So, I'll start off with Korea and Asia and then Charlotte can talk about the footprint and the outlets. So, in terms of Korea, we actually had exactly the same results in Korea in the first quarter as we had in the fourth quarter of last year. Although the ban has been lifted, what we still see is basically a macro sentiment in Korea is still caused the depression in sales.

So we had a decline really -- moderate decline started in the third quarter moved to be serious in the fourth and it's really continued into the first. So, we haven't seen an improvement as yet, but I think we should see it doing in the right direction. In our business in Korea, which is 95% domestic, so it's largely sentiment that we believe is affecting this.

Moving to Hong Kong and the question you raised about Hong Kong. Hong Kong has definitely shown an improvement. So, we had quite serious negative results at the beginning of 2016, 2017 financial year relating to Hong Kong that we've seen a definite improvement in the first quarter. It's now just very, very largely negative, broadly flat we would say with Hong Kong and there's two factors within there.

One is relating to price because we did reduce Asian prices so we've got a price headwind that we're currently encountering in the Hong Kong business, but we are seeing generally changes in footfall, which has improved and conversion has been on an improving trend is generally over the course of the last 12 months. So, we're more optimistic about Hong Kong just in terms of overall.

In terms of the rent, we're not expecting any significant changes in rents. We have some very positive negotiations during the course of 2016, but no significant changes in rents now anticipated and that's all being built into our PBT guidance. So, no change to margins with regard to that.

And with that, I'll hand to Charlotte to talk about footprint.

Charlotte Cowley

Yes, so in terms of footprint, I think there are some, I think, some assumptions in terms of outlook business, and I think higher than we see, that's to the first point. And the second point, yes, there's one that closed within Italy in the quarter, and we expect maybe one or two other closures as we go through the year.

Erwan Rambourg

And the appropriate footprint essentially, do you think if you have like 20 or 22 locations in the U.S. and European, Continental European clearly have anywhere between six and 13, 14, do you think you should go to that level eventually or?

Charlotte Cowley

I think I will start back based on the comments, the plan for the business is to improve the productivity of the mainline stores therefore, improve your full price sell-through in those mainline stores.

Outlets are used as clearance if you increase your footage of your mainline stores, you've got less products that needs to go through the other channels, so you should see it reduced, but I don't have a fair number to put on it.

Erwan Rambourg

Excellent. Thank you. Thanks a lot.

Julie Brown

Thanks Erwan.

Operator

We have a question from Warwick Okines from Deutsche Bank. Warwick please go ahead.

Warwick Okines

Yes, good morning. I also have three actually. Firstly, why do you think the consumer is so demanding for newness and fashion right now and why in particular do you think that's not translating into stronger apparel performance [Indiscernible]?

Secondly, are the comps actually getting much tougher? You've said about twice Julie, but Q1 2016, was actually the last of the really strong mid-single-digit growth rates, so on any -- anything beyond just looking one year, the context don't get any tougher. And so, certainly, what changed in May and June that explains your guidance change in Beauty in the first half? If you could just explain that less disruption that you're seeing. Thank you.

Julie Brown

Okay, sure. So, in terms of newness in fashion and the consumer demand as to why it hasn't really impacted apparel as yet. I think what's happening generally is that the majority of luxury customers now have established a wardrobe that they're comfortable with that. So, they tend to have a full range of clothing and what they're looking for is something that really brightens that up, provides us some sort of spark and inspiration to them.

So, they're really looking for something that feels fresh, looks new and in particular, we see this trend with the millennial. We see it in our own results in terms of the growth rates that we see between fashion and replan and we've also seen at with particular examples within our range. So, within our range for instance, if trench coats what we're finding is that the heritage -- the growth rates in heritage have slowed considerably, but where we are finding very strong growth is something like tropical gabardine and in particular, the host in style is doing extremely well so the lightweight fabric, it's got a sheen on it if you've seen it, Warwick and also, the design, the design is sort of very fresh. So, I think that gives you an indication about what people are looking for going forward.

In terms of coming through into the results with apparel, what we've definitely seen is that the leather goods segment is performing better than the apparels segment generally. I mean there could be a whole series of reasons for this. One is probably linked with discounting in the U.S., which is more so in apparel, but generally, what we found also with the luxury data from the bank studies is that where was the market with, in full year 2016, apparel actually declined by minus four. So, generally, I think apparel is more adversely affected by market trends.

In terms of the comps getting more difficult, the question you raised about that. We were really referring to the growth rates that we posted in comps last year, so we had to quarter June 2016, minus three. But then the September, December, March quarter were positive in the 2% and 3% range. So it was minus three, plus two, plus three, plus two so we're really just flagging that we were up against the weakest comp of the four quarters is what's really reflecting.

Warwick Okines

But my point Julie, to that, sorry about talking to you, stock comps is -- those numbers were the reason why you were minus three in Q1 last year was because it was up against the only good quarter from the prior year.

Julie Brown

Yes, because we were plus nine--

Warwick Okines

Six -- plus six I think yes.

Julie Brown

Yes, plus six. It is a feature, but I think generally, when we look at the trends, so, for instance, if we take China as an example because we've got a large part of our business with the Chinese consumer, we have seen considerable weakening in China in the first half of full year 2017 similarly in Hong Kong and they are -- they're becoming stronger. So, that's really where we just referring to the trend as to why the comps have started to become more challenging. It's also fair to say that Q1 this year is obviously a small quarter. Last year, Q2 was boosted by Brexit and sterling devaluation.

Now, I'm keen to answer the final question you had as well, which is relating to Beauty and the change in the guidance. We, as you know, we entered a partnership with Coty. As part of that, following the announcement that we gave at the beginning of April, we've been dealing with all the major distributors of our Beauty business and the stage when we gave the guidance at the beginning of May, there was no way of really knowing fully how each of them would react.

Some of them could decide to just sell down the product that they have, some could basically take the license with Coty and continue to order the stock and we didn't know exactly where it would land. We expected some level of disruption -- when you're going through a change in this order of magnitude we're expecting some disruption that will happen at today stage. So, basically, that's why we changed the guidance from being to slightly negative to being flat.

Warwick Okines

So, if I understand that correctly, that means that you had more success with major distributors continuing than the relationship than you had expected?

Julie Brown

Yes. Yes, we have.

Warwick Okines

Brilliant. All right. Thank you very much.

Julie Brown

Yes. Thank you. Any more questions? Operator, are there any more questions?

Operator

The next question is from Mario Ortelli from Bernstein. Mario please go ahead.

Mario Ortelli

Good morning. In your press release, you highlighted footfall remained challenging. Have you seen in any difference from region-to-region and geography-to-geography?

The second question is about customers. It seems that you are increasing your conversion very well, your top customer are driving the growth, but what about sourcing new customers? It seems that your focus on extract value on the existing clientele is working very well, but probably footfall is declining. You're not so focused in sourcing new customers. Am I right or wrong? And what are you doing to address this point?

The last question is about markdowns. If we take the first quarter total sales, the incidences -- the share of markdowns revenues is higher or lower than in the previous year? Thank you.

Julie Brown

Okay. Thank you. Okay, so if I take footfall and also customers and Charlotte can maybe take the markdown question. Yes, so in terms of footfall across the geographies, clearly, the markets where we have the greatest challenge with footfall, which I think is a macro factor, is really around the U.S. And here, we are still negative in the U.S. regarding footfall, but it improved in the first quarter compared with the second half of last year.

So, we have seen some signs of improvement there, but it is obviously a trend in the U.S. and I think on a macro scale, this is clearly what's led to the wholesale is engaging in discounting to get the footfall up in the department stores. So overall, we've seen improvement in the U.S.

As you mentioned, conversion is the thing that is driving the sales well and this is really all to do with our focus on the productive space and retail excellence. We're finding that the conversion stats are very strong against our -- with our top customers and you're right in the sense that customer retention is positive, but new customers is where we need to do more.

And you asked the question about what we're doing to address this. And what we're doing to address this is basically very much focused on fashion and newness in the range, so, very much focused on product and product innovation. Secondly, we are very focused on SKU rationalization so that newness in fashion can show through in our stores. And thirdly, all around improving store layout to enable that fashion and newness to show through.

And then finally, really to capitalize on that. It's all about attracting the traffic through the product and then converting, converting that successfully to the sales with existing and new customers. So, we're doing a lot to address this point. Charlotte, would you like to take the markdown question?

Charlotte Cowley

Yes, on markdown, there's no real change in the duration, our depth of markdowns this season compared to others as Julie is saying, we've been pleased to see that performance from the fashion portion of business of course, ends up going into the markdown period, but you have less inventory going to the markdown this year than we had last year and the full price business is being driving this market rather than the markdown.

Mario Ortelli

Can I get an idea what share of your total retail revenues in first quarter is driven by markdowns?

Charlotte Cowley

No.

Mario Ortelli

Thank you.

Operator

Our next question is from Julian Easthope from Barclays. Julian please go ahead.

Julian Easthope

Yes, many thanks and good morning. I just had a quick question about culture. Now as you rightly pointed out, Burberry has a very specific culture about it and over last year, you've introduced a whole new strategy and then changed half of the operations Board and the senior management team. So, I just wondered -- and also had £100 million cost savings that's produced results quite a lot of redundancies. So, I just wondered it just in terms of what the mood is like now at Burberry, but also how the new Board is jellying or new operations Board jellying and if you could give you some sort of initiatives of what the new teams actually brought with all their vast expanse from outside the group. Thanks.

Julie Brown

Okay. Okay, great. I think Burberry is undoubtedly got a unique culture. It's very -- I mean, people, when I first joined, Christopher refer to this as sort of the Burberry family and everybody firmly believes in the brand and the success of the brand and what we're here to do.

We have brought a lot of new people in, I think we've also got a strong internal team and the idea here is that we complement the strong internal team with people with particular areas of expertise. So, examples of that would be Judy Collinson, who has joined from Dior, she is now the Chief Merchandising Officer. Sabrina Bonesi, who has also joined from Dior, she's the new Design Director for Leather Goods and Shoes and we've also got Claudia Plant having joined from Net-a-Porter, one of the Co-founders of Net-a-Porter all around the brand experience and that's in addition to recent hires that we've had in relation to our new U.S. President, [Indiscernible] and also -- we've also had a new CIO joined from Unilever.

So, I think in terms of what happened to the culture as a consequence of this, I feel that people are very energized. I mean, we've got -- and I think my own team is a great example of this. I've got sort of 50% new people and 50% longstanding Burberry employees and they've gelled incredibly well and it's a real feeling of energy because of new ideas, but also appreciating the heritage of what's great about Burberry. So, combining the two, you get an amazing combination.

In terms of what some of the new people have brought, I think Judy -- most of the people were talking about have only been here a few months, but Judy was already making her mark on the main market in terms of the way the product was displayed, in terms of the engagements with wholesalers, and also recently, we've held a retail conference with a retail leaders across the world and again, the energy and passion for the brand and the belief on what we do is really, really exciting, really exciting.

Julian Easthope

Thank you very much.

Julie Brown

Thank you.

Operator

Our next question is from Rogerio Fujimori from RBC. Rogerio please go ahead.

Rogerio Fujimori

Hi, thanks. I have two quick questions. What's the growth for your millennial customer base higher than group average in Q1 and how this compares to second half last year, any qualitative comment will the U.S. just to understand how Burberry is performing with the younger consumers?

My second question is on women's, could you just talk about trends relative to minus two underlying seeing the second half of last year, was there any improvement given the success of a tropical gabardine?

And then in America's, the like-for-like was down low single-digits in the U.S. the most important market, so would it be fair to assume that's allowed in U.S. wholesale is also down low single-digits? Thank you.

Julie Brown

Thank you very much. So, in terms of consumer groups, we don't actually split it out publicly. Clearly, we measure it internally, it's one of our key metrics to look at consumer groups, but we don't give out information externally. In terms of women's, we still had some challenge in the women's range broadly in the first quarter. This is largely relating to outerwear.

Women's tropical gabardine has done really well, which has sold out in many markets and some stores in particular like [Indiscernible] has done incredibly well, but overall it continues to be somewhat of a challenge, which is very much where we're we focused on the newness and fashion elements. It's also why we are excited about the new ranges that's going out in terms of soft, leather, and outerwear that will be launched in the autumn and through to November.

I'm really -- I am thinking though, having seen the new range in the main market that will start to hit the stores in November, I think there will be considerable excitement about that.

I think you had also a question on Americas and low single-digits and the Americas. Obviously, our biggest market is Asia, so Asia -- we've seen a strengthening over the Asian results over the course of last quarter to this quarter, and we're now in mid-single-digit range in Asia.

In Americas, we saw an improvement between the fourth quarter and the first quarter in the Americas and we saw a slight improvement in the footfall. So, again, ongoing continuous improvement in conversion in America.

I think the thing in Americas is to first of all, ensure the new product goes out there and our focus is on newness and fashion and innovation. Secondly, the work we're doing on wholesale channel is very important here and ensuring the brand is consistently positioned. And thirdly, continuing to focus on Burberry private clients where the average retail volume of the Burberry Private client is twice of the normal average sale of the associates and we want to continue to really ensure focus on productive space. Okay? I think those are all your questions, Rogerio.

Rogerio Fujimori

Thank you.

Julie Brown

Thank you.

Operator

Our next question is from Melanie Flouquet from JPMorgan. Melanie please go ahead.

Melanie Flouquet

Yes, good morning. Thank you for taking my questions. I have three. Actually the first one is regarding the growth by consumer base. In the last quarter, you were kind enough to give us growth by like-for-like by nationality. So I was wondering whether you could clarify what happened to each nationality all the Chinese, the American, and the Europe and as you did last time.

And notably on the Chinese customer, you mentioned it was the same, as which to -- which was I believe low single-digits, but it actually accelerated in Q4, it was my understanding, to high single-digit, so have we actually decelerated back, would that be right? So, I just want to make sure I have the right numbers. And then if you could get an idea of the American consumer base for tourist is actually stronger than local and same for the European once you strip out the tourist in Europe.

The second question is on the sequential trend within the quarter. I know I'm sure you don't want to comment month-by-month, but you're pointing out the deceleration in the U.K. relating the quarter. So I was wondering if you could actually let us know whether this has been compensated by an acceleration elsewhere or whether this decrease actually slower overall in the second.

And my third question is on the -- in the forex impact of £25 million negative that you are guiding to for this year, how much do you expect in H1 and in H2 please? Thank you.

Julie Brown

Okay. Thank you very much. So, just thinking this in order. In terms of the customer base in terms of China, we saw a similar trend in Q1 to the second half, but we have seen an acceleration in the fourth quarter. So, overall, our second half performance last year was a low single-digit that transferred into high single-digit in the fourth quarter and now we're seeing basically the average of those two quarters, the mid-single-digit growth percentage in the Chinese globally.

Probably important to say here that we've seen considerable strength in Mainland China so where the shopping has also changed, we've had mid-teens growth in China as a country in the Mainland, but it's been offset by reduced tourist flows in Continental Europe and in the U.K. so that's the Chinese.

In terms of the Americans, Americans, for the full year last year, were flat. We saw a slight downturn in the fourth quarter of 2017 and we've seen similarly a slight downturn also in the first quarter 2018. So, broadly, flat last year, but slight worsening trend from the Americans globally in the fourth quarter.

The other one to call out is the Brits. The Brits have been doing incredibly well. So, we've seen an acceleration of growth quarter-by-quarter through the British. It was slightly negative at the beginning of Q1 2017 went into positive -- went into double-digit so the teens by the end of the fourth quarter 2017 and into now, higher than that, even higher than that. So, we’re seeing an ongoing acceleration in the British.

Just turning to the second question because it's kind of linked to that, I wanted to turn my attention to U.K. performance and the split that you mentioned there are around at the sequential trend. So, I'll split the U.K. between tourists and domestics. So, in with regard to tourists, there are about 55% over all of the U.K. business. And we did see a deceleration in tourists towards the end of the period and so the growth rate started to come down and this is largely because we were annualizing Brexit and we were annualizing some very, very tough comps because of sterling being depreciated. Obviously it was very attractive for people to shop in the U.K. We saw an influx of tourists in the prior enhance we've got for the tough comps. So, we have seen this deceleration, which we expect to see also in the second quarter.

The U.K. domestic market, which is about 45% of our U.K. market overall has shown an incredible growth and continues to show incredible growth and in fact the trend of improving just continued all the way through this first quarter, all the way to the end, so we're really happy about the overall sequential trend of U.K. domestics.

If I just turned my attention to foreign exchange. As far as foreign exchange is concerned, we've got minus 25 for the full year. Splitting that out, we expect to have a positive of 12 in the first half, largely as a result of the sterling weakening in June 2016, and we expect to have negative foreign exchange impact in the second half in the order of minus 37. So, that's the split of the number.

Melanie Flouquet

That's very helpful. Thank you very much. Just to confirm, globally, sequentially did you see a deceleration also in June or was this only U.K. and compensated by other markets accelerating?

Julie Brown

No, we haven't gone into the specifics of that. One of the reasons we just to explain we can't really pick it completely is because during the May-June period, we also run the sale period and separating out completely foreign currency, Brexit and markdown periods, it's very difficult to do so just to put that into context.

Melanie Flouquet

But you're able to identify whether June decelerated overall, right? It did in the U.K., but did it globally?

Julie Brown

We very rarely go into dissecting things month-by-month or the quarter, giving extra color on the U.K.

Melanie Flouquet

Okay. Thank you very much.

Julie Brown

Thank you.

Operator

We have no further questions. So, I hand back to you -- back to Julie to conclude today's conference.

Julie Brown

Okay. Thank you very much for attending this morning and just in summary, we're pleased with our performance in the quarter in a time of significant change for Burberry under luxury industry in general. We have got more work to do, we're building on the foundations that we have in place. And Marco and I look forward to speaking to you at the interim results, which will be on the 10th of November. Thank you very much.