Burberry Group plc (OTCPK:BURBY) Preliminary 2022 Results Earnings Conference Call May 18, 2022 4:30 PM ET
Gerry Murphy - Chair
Jonathan Akeroyd - Chief Executive Officer
Julie Brown - Chief Operating and Financial Officer
Conference Call Participants
Antoine Belge - Exane BNP Paribas
Rogerio Fujimori - Stifel
Zuzanna Pusz - UBS
Kathryn Parker - Jefferies
Louise Singlehurst - Goldman Sachs
Carole Madjo - Barclays Capital
Chiara Battistini - J.P. Morgan
Elena Mariani - Morgan Stanley
Sarah Butler - The Guardian
Good morning, everyone. Thanks for joining us. And welcome to our first physical presentation since the pandemic began a couple of years ago. I'm Gerry Murphy, Chair at Burberry. I'm delighted to be joined here today by Jonathan Akeroyd, our brand new CEO, and a more familiar face in the person of Julie Brown, our Chief Operating and Financial Officer.
Jonathan will share with you some initial thoughts on Burberry after his first eight weeks in office and then Julie will take us through the highlights of our last financial year, which ended on the April 2 last. Julie will also comment on the outlook for the current year which is evolving as continuing COVID-19 lockdowns in Mainland China contribute to near-term external uncertainties.
Despite the challenging macro environment, I'm very proud of our teams as they adapt to developments and stay focused on our brand journey, our purpose and our values. As a reminder, the slides and the transcript from this presentation will be available on our website. We'd be happy to take your questions at the end of the presentation. Thank you. And now, I'll hand over to my new best friend, Jonathan.
Thank you, Gerry. And good morning, everyone. It's a pleasure to be here. And I'm really looking forward to getting to know you more in the coming months. I've actually seen a few familiar faces here as well. It's fantastic.
I feel very privileged to be here standing before you here today. As you know, Burberry is a unique British heritage business that I've admired actually for many years. It's got an extraordinary history, heritage, iconic product and [indiscernible], and strong culture and values. I'm really looking forward to leading Burberry in the next phase of its development.
Closely followed Burberry's journey over the past few years and I've been really impressed with the progress made to date. Company has laid out a clear, defined strategy to elevate the brand, product and customer experience to true luxury status, and has taken some challenging, but important commercial actions to achieve this ambition, including a relentless focus on full price sales.
At the same time, Burberry has continued to be a force for good, leading the industry in luxury's transition to net zero and supporting communities in need. As CEO, I fully intend to build on these strong foundations as we focus on accelerating growth.
The ambition to be true luxury remains absolutely right, and it will create the most desire and value for the brand and, ultimately, the most sustainable and profitable business. Meanwhile, Burberry will continue to go the extra mile in terms of environmental and social responsibility guided by purpose and values.
Since joining in March, I've been better able to get to know our teams and our business. My immersion has left me even more excited about the opportunity that lies ahead. Quality and commitment to our people is second to none. And we have a strong platform from which to grow faster.
I look forward to updating you my plans in the interim results in November. And I will now hand over to Julie. Thank you.
Thank you, Jonathan. And good morning, everybody. And it's absolutely amazing for me to see so many familiar faces in the audience. It's really – after two years, it's a great pleasure.
So, we'd like to update you on the progress we've made in the year. So, during full-year 2022, we continued to deliver the strategy of elevating the brand, product and customer experience. And it was a year where we focused on increasing full price business, and this is underpinned by a strong gross margin and also a record profit.
So, while it created a headwind to revenue growth, our decision to exit markdowns was the right one for the brand and also for the foundation of longer term sustainable growth. So regionally, compared with full-year 2020, we've seen a strong performance in America where full price sales in the US market have almost doubled, and Mainland China and South Korea, they're up more than 50% and 80% respectively. EMEIA, as we know, has been impacted by travel trends due to COVID. So, we're pleased to say that full price sales turned positive in the fourth quarter versus pre-pandemic levels due to the growth and the focus on local clientele.
From a product perspective, continued investment in our focus categories, outerwear and leather goods, led to full price sales growth of 39% and 28% versus LLY respectively.
We have enhanced our luxury experience, with strong new store concepts that are being rolled out across the stores globally, that we've now completed 47 stores and then we've got a further 65 planned in the coming year.
And we've made great progress against our responsibility target. And we're now carbon neutral in our own operations. And as a business, with ESG as our core, we are building on the success of a program by committing to new industry-leading climate targets.
Finally, we've delivered excellent cash conversion of over 100%, leading to a strong balance sheet. And this has enabled us to grow the annual dividend by 11% and recommend £400 million share buyback to be completed in the financial year.
The lockdowns in Mainland China, as Gerry mentioned at the beginning, and SAP resulted in a challenging end to full-year 2022.
So, turning to the summary financials on slide 7 and referring to year-on-year changes at constant exchange rates. Total revenue was £2.8 billion, up 23%. And adjusted operating profit was £523 million, an increase of 38% and a record level for Burberry. This resulted in a margin improvement to 18.5%, and this is actually up 210 basis points at constant rates compared with the prior year and approaching the 20% target we set for the group by full-year 24.
Adjusted diluted earnings per share increased 49% at constant rate and 40% reported and further benefited from a lower tax rate and reduce shares in issue.
Free cash flow for the year was £340 million, slightly down on last year due to the investments in the store portfolio and also the phasing of tax.
The dividend has increased 11% to £0.47, in line with our progressive policy and also restoring the dividend cover to 50%. So, please note that, in this presentation, growth rates and figures are stated on a CER basis and a like-for-like on a 52-week basis. As you know, under the retail calendar, this year is a 53-week year and this has been incorporated into the reported financial value.
So, before we get into the financials, I just wanted to share one slide that gives you some data behind Jonathan's comments in the opening about the journey we've been on over the last five years, as we've shifted the focus in the business.
So, retail revenue has increased from 77% to 80% of our sales. And this is despite the removal of around £200 million of markdown revenues. Newness has increased as part of our product portfolio, from around a quarter to almost half of our revenues, resulting in an improved balance of product offer.
Real estate has been substantially refreshed. Over the last five years, we've opened 125 new stores and closed 176, including 38 stores in non-strategic locations, delivering improved productivity.
And importantly, we've also seen a 30% decline in wholesale doors as we exited non-luxury accounts. And despite this, wholesale revenues have increased through the remaining doors to higher quality accounts. Now, during this period, product elevation has been the major focus and this has also been reflected in a significant increase in AUR.
And finally, we've also transformed the cost base of the business, delivering over £200 million of cost savings and reinvesting it in the business in marketing, clienteling and customer inspiration. So, overall, the foundations for growth are well set.
I shall now take you through the income statement, starting with revenue on slide 9. So, the group saw a retail sales growth of 20%, with the comp up 18%. And within this, full price grew 24%. Wholesale was strong, up 35%, driven by an excellent order book and licensing saw good traction in both eyewear and beauty, rising 11%.
Overall revenue grew 23% at constant rates and 21% reported due to a £35 million tailwind from the addition of the 53rd week, together with an £86 million headwind from currency.
Slide 10 shows our retail sales performance versus two years earlier, or LLY as we call it. So, total retail sales grew 10%, comprising 6% from the retail comp and relatively modest space growth of 4%, largely in Asia.
Within the retail comp, full price grew 30% and the exit of the markdown presented a 9 percentage point headwind to comparable store sales growth, together with reduced trading outlets. It is worth noting that there was less inventory available for outlets despite the exit of the markdown, demonstrating strong inventory management and improved sell-through in the business.
As mentioned, headwinds from the markdown reductions will no longer occur going forward. This is the last quarter.
So, moving on to slide 11 and showing our quarterly retail performance, we believe it's most helpful and more representative to compare this with pre-pandemic levels and, consequently, we're showing Q1 to Q3 against LLY and Q4 against LLLY. So, we'll focus on the full price through the quarters, given the disruption from markdown.
So full price growth in the first three quarters increased 21% compared with full-year 2020, driven by strength in Americas, Mainland China and South Korea and from our key focus categories, outerwear and leather goods.
In the fourth quarter, full price growth was up 17% versus pre-pandemic levels, lower than Q3 due to COVID related disruption in Mainland China and SAP, and including digital around 40% of our Mainland China distribution is currently affected by closures or restrictions.
I'm pleased to say that, going forward, we will simplify all our comparisons to concentrate on versus last year alone and also return to a single measure of retail comp performance.
So, taking a closer look at the regional retail performance versus two years ago on slide 12. Americas has been the standout region, up 28%. The full price business was excellent, with the US almost doubling in the period, and this was driven by new clientele to the brands.
Overall, Asia-Pac grew 13% with full price up 29%. And strong growth was seen in Mainland China, with full price sales rising 54% in the period, although this was affected by COVID in the fourth quarter. The region saw good demand from customer groups, with particular success in leather and outerwear in the year.
South Korea saw full price sales increase 81% and this growth was partially offset by Japan and SAP being the most impacted regions by COVID-related tourist flows.
EMEIA has continued to progress in the period, but for the full year was down 18%, with full price down 11%. And actually, we're pleased with this performance given 50% of EMEIA revenues pre-pandemic were driven by tourists, and they remain now at low levels. In the fourth quarter, EMEIA full-price sales were ahead of pre-pandemic levels, given our focus on local clientele.
So, turning to the gross margin on slide 13. The most significant year-on-year benefit to gross margin was our move to full price. And we've also benefited from price increases. These more than offset the number of headwinds, including channel and geographical mix, increased duties following the exit from the EU.
Overall gross margin was slightly ahead of guidance at 70.6%. In the full year, despite significant inflationary pressures and further investment in product, our active management of procurement efficiencies and selective price increases means that we are planning to maintain the gross margin at around 70%.
Now turning to the adjusted operating profit on slide 14. Operating margin last year was 16.9%. And we've seen considerable improvement this year to operating leverage, the gross margin rate and cost savings, aggregating to boost the margin by 640 basis points. Of this, we have reinvested 320 basis points of margin into commercial areas of the business and also absorbed 110 basis point headwind from impairment. Operating margin closed at 19.0% at CER, placing us in a good position to reach our 20% medium term target.
Returning to cash, the business has very strong cash generation as we show on slide 15. Over the past six years, cash conversion has averaged over 100% despite the impact of COVID. And key metrics include, receivable days have gone from 25 to 19 days over this period and inventory turn has increased from 1.6 to 2 times by full-year 2022.
And I'll now turn to the cash flow statements on slide 16. So, we delivered another solid year of cash conversion, generating £340 million in free cash flow and a conversion rate of 106%. Working capital saw an inflow of £54 million. And within this, inventories reduced in gross terms due to the improved inventory management.
CapEx was £161 million and was broadly in line with guidance, reflecting significant investment in the store network. And tax paid was £180 million. It was up on the prior year due to the rise in profits and the phasing of tax payments.
And it would also be worthwhile reinforcing our medium term value creation model that has two components on slide 17. So, firstly, from our operations, we remain committed to achieving high-single digit revenue growth and meaningful margin accretion from a full-year 2020 constant currency base, assuming a broadly stable macro environment.
And secondly, from our capital allocation model, where we prioritize first organic investment, and we've invested over £600 million in capital expenditure over the last five years. Secondly, a progressive dividend where we've returned the 50% cover and paid out over £700 million in the last five years. And third, inorganic investments, which by their nature are infrequent. And finally, returning excess cash to shareholders while maintaining a solid investment grade credit rating.
We've previously returned £800 million since 2017. And today, we've announced a further £400 million share buyback today. Our leverage is low at the end of this year at 0.2 times net debt to EBITDA, resulting in a very robust balance sheet.
Now, given we've issued guidance last year, we'd like to update you on the progress towards those goals. The guidance was set based on full-year 2020, given the disruptive base in full-year 2021 due to COVID. Revenue is running at a 5% CAGR with full price delivering a 15% compound annual growth rate. The benefit of this elevation is that it's seen in the gross margin that is now around 70% and a level we believe sustainable for the business. Similarly, the operating margin is up over 200 basis points, and shows good progress towards our 20% medium term target.
And then turning to the outlook on slide 19 and starting with the medium term. We retain our revenue and margin ambitions. That said, as we start the new financial year, there is a more challenging trading environment due to macroeconomic uncertainty and the recent outbreaks of COVID in Mainland China. We're expecting a rebound in China once restrictions are lifted, and will continue to invest ahead of the recovery, which is likely to lead to a more pronounced phasing in group profits between half one and half two compared with a typical year. We expect wholesale to be flat in half one, with no change expected in terms of overall retail space.
The tax rate is expected to remain at 22% this year. We expect a rate increase of around five 5% from full year 2024, reflecting the UK corporation tax increase.
Capital expenditure is expected to be around £170 million to £180 million, with investment in the retail network being the largest component, covering 65 stores.
And currency-based movements are favorable based on the May 6 spots, with revenue boosted by £159 million and adjusted operating profit boosted by £92 million. And for modeling purposes, to remind you that full-year 2023 returns to a normal 52-week year. All this complexity will be gone too.
So, having covered the financials and taking a look at slide 20, I would now like to look at our strategic progress. Throughout the year, we've excited customers in unexpected and innovative ways with a range of original brand activities. We've generated strong reach and engagement.
So, in March 2021, we unveiled the autumn/winter 2022 collection in an event that marked the first live runway show for Burberry in two years. Presented in the heart of London, the show was a celebration of British culture and identity, further reflected in our collections which featured icons from the Burberry archive including the Equestrian Knight Design. Excitement around the event helped to generate record views on social media, which were up triple digits compared with autumn/winter last year.
We've also inspired our customers with activations and collaborations. Q3, as you know, saw one of the largest activations on Jeju Island, South Korea. And then, we followed this in Q4 with a month-long takeover of Rodeo Drive in Los Angeles. The immersive installment was directly inspired by Riccardo's spring women's collection, Animal Instinct. And as part of the store takeover, the exterior façade of the building was draped in kaleidoscopic abstract prints with an activation bought to live through an Instagram filter.
At the end of the quarter, we teamed up with Supreme to launch an exclusive capsule which sold out on burberry.com within seconds. The collaboration generated brand heat, with Supreme posts representing some of the best performing content in the fourth quarter, outperforming the average engagement by over 100% and generating a high level of new followers.
We built on that positive momentum at the Met Gala earlier this month, where we hosted a table and dressed a stellar lineup of guests, including Kate, Emma Lavigne Bad Bunny and Bella Hadid. We outperformed peers in terms of earned reach on social media and generated over 1,000 pieces of coverage.
We also continued to harness our creativity to drive growth across our two core product categories – outerwear and leather goods. Following the success of our first dedicated campaign celebrating our iconic outerwear offer, full price sales grew 39% compared with two years prior. And this was driven by a strong performance in jackets, quilts and downs, and rainwear too performed well across both heritage and non-heritage, accelerating in the second half.
Secondly, leather goods also delivered a strong performance, with full price sales up 28% versus LLY and the fourth quarter benefiting from the launch of the Frances tote, a recent extension to the TB family.
And as we enter the year, we've initiated a recent launch of the Lola handbag campaign, including a program of popups and pop-ins across the world. Following the campaign launch, we saw an impressive level of views and engagement across social platforms, outperforming previous handbag campaigns and videos by 110%.
So, turning to the customer experience, we continued to roll out the new store concept that represents all that is new in Burberry – authentic, bold, elevated with creativity at its core. The concept will transform how our customers experience the brand and product in a uniquely British luxury setting with our leather product in a much more prominent position.
And here you can see the recent opening of Rue Saint-Honoré in Paris, with the store draped in birch brown check. We now have four flagships in the new store concept, including Paris, Sloane Street in London, Plaza 66 in Shanghai, and IFS in Chengdu.
In terms of the rollout of the concept, we've now completed 47 stores and a further 65 in our plans for full-year 2023, meaning that over half of our sales will be made in new or refurbished stores, enhancing the customer experience.
In terms of performance, the majority of stores are performing above plan, attracting new elite clientele and delivering higher AUR than the prior store portfolio.
In addition to the physical stores, we also continue to focus on omnichannel and a seamless customer experience between on and offline. So, for example, in the fourth quarter, we expanded our aftercare offer by rolling out new digital tools to enable customers to access bespoke services.
And to supplement stores, we've also invested in a large number of pop-ups and pop-ins during the year. These are the more interactive spaces dedicated to amplify the marketing campaigns and inspire our consumers. And this year, we started with 70 units in half one with the leather campaign, followed in outerwear in half two with a further 34 units. And in Q3, we created a traveling trench cube inspired by our Shenzhen social retail store to showcase an immersive experience across a number of stores in Mainland China, generating strong engagement, traffic and sales.
We have followed this more recently with Lola, launching an extensive program of 65 pop-ups globally to accompany that campaign.
So, finally, moving to ESG. We continue to take industry-leading steps to advance our decarbonization agenda. And I'm proud to say that we've largely met all of the ambitious targets we set out in our 2017 responsibility strategy.
So, first, as a company, we are now carbon neutral across our own operations globally, and 100% of our electricity is from renewable sources. Second, regarding product, almost all of our products have more than one social or environmental benefit. And actually, the majority have more than three.
And finally, with regard to communities, we've exceeded our goal of positively impacting a million people through projects such as the recent partnership with Marcus Rashford MBE and charities across the UK, US and Asia, to provide literacy skills and safe creative spaces for underrepresented youth.
So, looking forward, we remain resolute in our commitment to make a positive difference to people, planet, and communities, and the strong foundations we've set underpin our new ambition to be climate positive by 2040, which will require accelerating emission reductions across our extended supply chain.
In November, we also announced a new biodiversity strategy to further protect and restore nature, while expanding support for farming communities and developing regenerative supply chain.
In parallel, we've continued to prioritize diversity and inclusion, together with colleagues' health and wellbeing, while supporting communities in need. And as a modern luxury brand, I am pleased to confirm today that we have banned the use of exotics in future collections, building on the commitments we made a number of years ago to go fur-free.
So, in summary, having successfully established a strong platform from which to accelerate growth, we are well set up to embark on the next chapter. And we will continue to deliver high quality growth whilst building a more sustainable and inclusive future. We're a business with enormous potential and I look forward to working closely with our new CEO, Jonathan Akeroyd, as we advance to the next stage of Burberry strategy.
And I'll now share with you a short video highlighting some of the year's achievements and then we'll return to questions at the end. Thank you.
Q - Antoine Belge
It's Antoine Belge at BNP Paribas Exane. Two questions if I may. The first one for Jonathan, obviously, early days for you. It seems that the brand perception for Burberry differs from one region to the other. Quite good in some and less so in others. So, do you think that Riccardo teaching needs to maybe change a bit the aesthetics of the brand?
My second question is about the fact that sales are expected to go high-single digit this year. What's the embedded situation in China that you have in the guidance, i.e. do you expect that high-single digit to be achieved, that China should get out of lockdowns, I don't know, in July, for instance?
Finally, in terms of the margins, the 19.5% is the reported base. I understand the FX benefit. But if we just look at the underlying margin at constant currencies, what are the moving parts? And do you think that it would be a significant margin improvement this year? And I don't know if you can be maybe 100 basis points? Thank you.
I'll take the question on the brand because, actually, I think, I'd really like to call out the great work that everybody's done over the past four years. And also, please take your mind that, in those four years, we've also had a pandemic. And for me coming in, I've been extremely impressed with, initially, the strategy that was laid out. I think the execution was very quick. And I think it's also important to call out a lot of the things that Riccardo has brought in and the company has brought in. We now have a new brand coach, which give us a huge amount of consistency. I've been very impressed with the [indiscernible] was launched very quickly. We're now applying it to a great deal of leather goods. Also, the monogram, I thought, was an excellent complement to the heritage brand codes that we have. And again, I think this is something that we're going to – planning a lot, particularly in the summer months. We have activations last summer, we're going to continue that through this summer. So, I think this brings a big consistency, and I definitely pull it out across all regions personally. So, from that side, I think I'd give Riccardo a lot of credit for.
And also, in terms of the – I'm sure I'll come back to this later. But it's easy to say about elevation. But it's, certainly – the elevation of the retail network had a lot of investment last year, and we plan to continue invest this year. And again, the consistency, the network clearly needed to be upgraded. We're doing it, we're doing it very quickly. And again, also very, very consistent. And I've been impressed with that.
First of all, the question about China and in relation to guidance, we are experiencing – well, first of all, going one stage back, in the fourth quarter versus last year, our China business declined 13%. But we did deliver in the quarter a strong comp at 7%. So, the rest of the business effectively was growing around 20%. So, we've got a strong underlying business performance. It was really the disruption from China in that final period.
In terms of the current trading situation or the current situation in China, what we're finding at the moment is we've got approximately 40% of our distribution in China disrupted that's either through store closures or it's basically due to people not going out because the city is on lockdown, and then also restricted hours, together with the digital have been disrupted also. So, it's around 40% of the business is currently experiencing a disruption.
And, obviously, we don't know when it will end, like most people. And we've worked a number of scenarios out in the business. And basically, we've worked on the basis of an upside, a base case and a downside. The cost is to the base. To the upside is the inventory planning. And the downside will manage cash to the downside case. So, we've been very flexible and agile in the way that we're managing the business.
In terms of the margin, we're very pleased with the margin. We're pleased with the gross margin, coming out at 70.6%. Despite the inflationary pressures from logistics and freight, we're pleased with that. And then, when it comes to the operating margin, as you say, it's reported 18.5%, but on an underlying basis, it's 19% CER versus last year. So, again, you can see us making the progress towards the targeted margin of 20%. And within the components of that operating margin accretion, we had a considerable benefit, over 500 basis points of leverage on the operating margin, but we chose to invest over 3 percentage points of that back into the business, largely into the commercial front line, into visual merchandising, marketing, and customer inspiration. So, net-net, we see it as a good result for the business.
It's Rogerio Fujimori from Stifel. I have two questions. First, I think on the price increases that you've taken, have you seen any consumer resistance, any surprises on elasticity and are you still happy with the value proposition versus peers?
And the second is on the distribution cleanup. I think you've completed the rationalization of all non-strategic doors. So, I think there's just one to confirm that I think in terms of particularly the outlet footprint and if the work is completed.
And I think related to that, I think how many stores perhaps you need in Hong Kong? I know it's easier to close and open. But any thoughts would be appreciated.
Yes, in terms of price, as you know, we took a high-single digit price increase on a large part of the leather range back in May last year. And we've taken some price increases on other parts of the range across the portfolio. We do data analytics to look at the consumer response whenever we take a price increase, so that we can judge the position. And we've seen no adverse consumer response to the leather goods price increase, which was the more substantial of the two. We've taken an additional one in January also, again, largely the leather range.
And in terms of pricing opportunity, we do see continued opportunity for price. Clearly, the world is suffering at the moment from major inflationary pressure. So, we do see opportunities for selective price increases, but we'll be very careful and we'll work with the merchandising team on deciding where to pitch it. And we'll inform you when we've done it. And with commercially sensitive information, so we won't give it ahead of time.
In terms of stores and store closures, yeah, we finished the program we said a few years ago, we said we're going to close 38 non-strategic stores. And these were stores that were either in the wrong strategic location or they were underperforming. And we've made those closures now. We've completed that program. The rest of the changes you saw on the bridge that I shared this morning, it was all to do with really refreshing the network. So, in some cases, we've moved from one location to another. So, Paris is a great example of that. And I know Jonathan visited it recently this last Friday. So, I think we're very pleased with the new location in Paris. I don't know, Jonathan…
And I'd also like to call out, actually, Shanghai as well. We've moved from a good location in Shanghai into the best location in Shanghai, shows our commitment to China. And I believe that we can – once this wave is out of the way that we really feel confident that we've got the product mix, we've got the retail network to continue to build on. Been very impressed with the store concept. Clearly, it's also been readjusted to help us focus more on leather goods, as well as our core business around outerwear and soft and ready to wear. And it definitely feels in line with the elevation strategy [indiscernible].
[indiscernible] at future closures, we're anticipating retail space being broadly stable during the course of full year 2023. There will be closures and relocations within that, but broadly stable in terms of overall dimensions.
And then, the final question about Hong Kong, so, yes, we have made the decision to make two of the main store closures in Hong Kong. The trading position there is challenging. Clearly, it was an area of the world that previously benefited a lot from Chinese tourists. So, yes – and now, of course, suffering from lockdowns. So, yeah, we've made two changes there. But at the same time, we are continuing to refurbish and invest in the stores in preparation for a reopening, a full reopening. So, yeah, the investment continues.
Zuzanna Pusz from UBS. I have three. So, the first question is a bit broader in outlook for both Jonathan and Julie. You've confirmed today your outlook for high-single digit sales growth and 20% margin – EBIT margin. So, I'm just wondering, first of all, given that you've achieved almost 20% margin because you were at 19% on an underlying basis despite just 5% sales CAGR, does it mean that maybe in the short term, you're likely to prioritize sales a bit more? So, reinvest? We should see a bit of a – more of a pause in terms of margin expansion.
And secondly, related to that – that's more for Jonathan – you highlighted in today's press release that we should expect a strategic update in November. Does it mean that it will be more qualitative rather than quantitative? And does it mean you're not going to change any of the financial targets? Or is it just too early to say?
My second question is a follow-up on pricing. Can you just remind us what exactly were the price increases and the timing? Maybe I'm wrong, but I'll just check, I think it was roughly 10% on your leather goods offering earlier in the year, which means that you saw 2 percentage points contribution. In which case, I was just wondering why full price sales lags so much because the total like-for-like was 7%, full price was 5%, but should have benefited sequentially from pricing. So, is it just related to China? Or any additional color? And that would be very helpful.
And third question would be just generally if you could maybe comment on what you're seeing in the market right now. Appreciate China's not easy to comment on, so I won't be asking you about that. But maybe specifically, the US has been an incredible success story for you and the sector overall, given the market volatility. Are you seeing trends unchanged and maybe similar in Europe?
I'll start on the strategic update. Surely, we're two months in, it's still early days, but I've been quite immersed into the brand, I've had a good study of it, obviously, clearly, before I joined as well. Again, calling out – I'm very aware that we've gone through a transition, we've put in line a new strategy, we've executed it recently in the past few years. And now, the expectation is on growth. I think all of the actions that have been put in place will enable us to focus on that. And I'm very excited to do that.
I'm also very excited to share with you about what we can also do to enhance the strategy that was put in place, and I'm sure we can give some color on that in November. So, I'm very positive that we can do that.
I'd also, again, like to – the decision to exit markdown was very brave and very impressive. You've seen the growth that we've grown in our full price business. We believe that we can continue to really focus on that. You also saw the share of the mix in terms of the offer. We now have a very good balance between newness and carryover. This means that we can protect our margins on the carryover, we can continue to build our accessory business there, which I think is really important. But also there's an opportunity now to really also play on the newness as well, which is clearly important.
And I would say your comment on America is right. I think there's a much stronger – now we've gone through this move, there's a much stronger appetite for the brand. We've seen a high level of recruitment for a new customer coming to Burberry, younger customers coming in across all the regions. So, there's lots of elements we can play on.
But I think one thing that we have that's very special is we have the very core strong categories. Obviously, in outerwear, we're developing, I would say, a stronger presence in in outerwear on top of our raincoat business. It's always something that – I think we can safely say that we own that very, very nicely. But then also, the introduction in elegance as well, and there's been a very positive reaction to that. We're confident that we can continue to build on that. And again, I'll share more depth and more color on that in November.
The first one in terms of the margin progression given the 5% CAGR, we're obviously pleased with the margin. You can see the benefit of the full price switch coming through there with the gross margin. We will reinvest in the business. And you've seen us do this when we share the operating margin bridge. There was a considerable amount of leverage we could have gained, but we chose to reinvest in the business. Over 3 percentage points of that was reinvested. And if it will carry on doing that, the focus is very much, we're holding what you might call support areas in the business or enabling areas, Burberry business service is relatively flat. And then, we're allowing all the growth to go into the commercial front line. And we'll carry on doing that because it's the way to fuel the growth.
We're not obviously going to give guidance, specific margin guidance on the next two years just because the environment doesn't really favor doing that. But we are confident of reaching the guidance, which is the 20% margin by full year 2020. It's just a case of the timing and the phasing of how we go about doing that just because we've got to manage the business in a very agile way if you saw us do during the first wave of COVID.
In terms of pricing, we took a price increase, as we mentioned back in May, which was – it wasn't 10%, it was a high-single digit percentage change. And it was a sizeable proportion of the leather goods range. So, we have taken some price increases, but just in terms of your question about why have you got a comp of 7% and full price of 5%, the reason for that is simply due to the mix of the regions.
So, in terms of our mix of regions, China, which is one of our most prominent mainline regions, if you like, with stores as opposed to outlets, as that fell because of the lockdowns and EMEIA was growing very strongly, you get a shift in the region. So, if you look at all the major regions, the full price actually beat the comp in all cases. It was just the fact that, when you put them together, it's the mix. It's just the math that does it, unfortunately, but it can be tricky for people to follow. But try it out and you'll see it does actually work.
So, in terms of – I think you mentioned also about China and price. So, just to say, China, in this fourth quarter, has had a major impact. So, minus 13% in our fourth quarter versus last year, the rest of the business is up 20%. So, a very strong performance elsewhere.
And then, what we're seeing in the market was I think your fourth question. So, in terms of the market, we are seeing a robust environment in the United States. So, our growth in the United States was up 13%. This is full price. The comps get tougher, though, in the United States. So, you probably remember, in the first quarter last year, our full price business grew over 110%. So, we are going to come across them much more difficult comps.
Having said that, there's still a clear demand for the product. And we're seeing very good traction in leather goods. Jonathan mentioned leather goods. Really, really strong traction.
And then, it brings me on to the other major region which is EMEIA. EMEIA is growing very, very strongly. We're seeing over 50% full price growth in EMEIA. And as we mentioned, the full price is back to pre-pandemic levels in the fourth quarter, which is really quite an achievement because half the business was tourists. So, overall, we're seeing that strength continuing into the first quarter. Yeah, if only China would unlock, we would have a very good picture.
Three points, if I can. So maybe in terms of you arriving and discovering, I suspect you knew the brand quite well before, but looking at merchandising, if you interview some of the sales staff, they'll tell you we need more T shirts or we need more denim. Are you identifying any easy wins as you take over the brand in terms of merchandising? Because I think you have a reputation for being a really good merchandiser, are there any obvious gaps that you think can be filled for the brand?
Secondly, I think you mentioned that exiting takedowns was quite a brave move. And at the same time, there's a bit of a dichotomy because, in Mainland stores, you're selling more at full price, and at the same time, there's still a pretty big outlet component. So, I'm just wondering how you think about this dichotomy coming more recently from a group where outlets are a big thing, how do you view the potential conflict or contradiction?
And then lastly, on China, when you had lockdowns last year in Shanghai and more recently in Shenzhen, you had a pretty big rebound following that, but there's a lot more duration here in Shanghai and now Beijing and other places. So, I'm just wondering, you mentioned you have been working on different scenarios, but how do you think about consumer psychology as you've had more duration? And how can you hope for the consumer to rebound versus the experiences of lockdowns from last year?
On the product side and easy wins, of course, when you join a company, you can always see some call-outs and some easy wins. So, we're already working on that with the teams, but, clearly, again, I will – we'll be working on those now. But I've set out, I'd say, a much more concise merchandising strategy at the end of the year.
I would just like to say that, again, credit to the teams. We've got a very good team of merchants in the company. I've been very impressed with the level, the caliber of our teams, both through design and also merchandising. So, they're able to adapt. And as I mentioned earlier, with this ability that we have to sort of complement our replenishment or carry out of a business with newness, we can adapt to that quite quickly.
I would also like to say, I was very curious upon joining to see the ability of a company that was historically a ready to wear focused company transition into a better focus on accessories. And we've, again, built some good teams there across design, merchandising. So, I've been very, very impressed with the offer that we have in place. And there's lots of things that we can build on there.
Julie mentioned earlier, recently, in the last few weeks, we've launched our Lola bag, there's been a very positive reaction to that. That's actually, I would say, beyond our expectations in the launch that's had, as well as very a strong link in between the way that we've marketed and we've promoted it. So, that's been a success.
Just coupled into that, the pop up model, in terms of launching products, as you know, is very modern, it's very relevant for now that the consumers really engage with pop-ups wherever they are both locally, but also, particularly in Asia, we've held back on, obviously, activating those. So, we intend to win market, does come back where we will be ready and we'll be activating those pop-ups through, hopefully, the second half of this year. So. we're all ready to go with that. But, again, I look forward to sharing a little bit more color on the merchandising strategy in a few months.
Just on the outlet business, as we have exited markdown and we have a very clear policy in terms of how we manage our aged inventories, the outlet channel will help support that. And we believe that, for now, it will be very complementary and we're very confident that we can actually make that and manage that well.
I think just to add to that as well, because we were one of the first, if not the first actually, to announce a non-destruction of inventory policy, it's therefore important to keep the ability to liquidate that inventory. But we're coupling it with good sell-through on the mainline product.
In terms of your third question relating to China, we were actually looking at this with my team at the back just a few weeks ago. And we looked at what happened to China, China sales in the first wave and the length of time to rebound. And then, what happened in August, August was a much smaller snapshot of a downturn, but we looked at what happened in August and the length, the speed of the uptake, and the curves are tending to just follow in terms of the rebound. So, it does seem to be fairly resilient. Obviously, this section of society that luxury brands target anyway tends to be a more resilient sector to these macroeconomic issues we're experiencing in the world at the moment. So, we are anticipating a rebound, and that's one of the reasons we bought the inventory to an upside case, so that we're ready for that rebound. And we will also invest ahead of the curve because we think it's important to be ready. As Jonathan mentioned, we suspended a whole series of popups and pop-ins that we were planning in China. Plaza 66 is our major store. They're currently closed. But as soon as we can reopen these, they're extremely good engines for growth. [indiscernible] what we will do.
Unidentified Company Representative
I think we've got something here online. So, over to Julie.
Unidentified Company Representative
Yeah, we've had an email on behalf of Luca Solca from Bernstein. He says now that you have exited the unwanted wholesale accounts and stopped markdowns in store, you're your strategy regarding outlets changed?
And then follows on with, the Supreme collaboration has been particularly with the younger generation. Are you planning to rely on collaborations going forward to diversify the brand's aesthetic under Riccardo?
I think we covered really the outlet question. I think that's quite clear. With regards to the collaborations, they're an important model of the market that we're in at the moment. And we were extremely impressed with the Supreme collaboration. It was very nice to see finally queues outside of our flagship stores in Regent Street. We sold out online very quickly. And again, the nature of our brand really lends itself to do exciting collaborations and also product initiatives. Again, I mentioned earlier, the monogram, we activated that well in the summer. We plan to do it again this summer. I think that will be our internal collaboration, if that makes sense. And I think people have really reacted to that very well. And it's something that we evolve every season. So, it's not just same product, it's a refreshed and a new monogram, and we can hopefully build an excitement next month when that launches.
And then, beyond that, obviously, this is something very much in Riccardo's creative vision as well. And he's definitely got a strong eye and a pulse to see really what's needed and what really the market needs at this time. So, we believe that that will be something that we will continue.
Kathryn Parker, Jefferies. I just have two questions for you. So, my first question is for Jonathan. And I wondered if you could make some comments on the current status of Burberry supply chain and whether you see any opportunity for M&A in this area and what products that might focus on. And then, my second question is on the wholesale guidance for H1, for flat year-on-year. Pricing should have had some positive impact. And so, I wondered if there's any additional impact from a switch to the e-concession model or if you're seeing any kind of caution on reorders from your wholesale account.
Just with regards to supply chain, again, two months in. So, I've been doing a few tours, as we speak, within the two months. I've actually visited our internal manufacturing facility in Castleford in Leeds. Very impressed with the teams that we have there. I think this is something that we can really build on, the fact that we're now actually, as we go into the end of this year, we're going to be really focusing on our heritage raincoat business and really promoting the fact that these will be made in the UK in an extremely sustainable way. A lot of handcraft, a lot of passion that goes into it. And this is a real position of strength for us, we believe.
And then, going on to accessories, as you know, we have a good leather goods industrial facility in Italy. I've not seen that yet. I'm traveling there next week. But it's certainly delivered very good high level – I've been also impressed with the quality of our leather goods, actually, and the ability to react and develop product in a very clear and fluid way. Obviously, at the moment, it's too early to comment on M&A and I've got a lot of things to focus on in the coming months, but we'll see how that evolves.
Taking wholesale guidance question. Yeah, the main reason the wholesale guidance is flat is not to do at all with subdued orders because when you look at Americas and EMEIA, the growth rate is very strong. There are two issues really that we're encountering. One is travel retail in Asia. So, because there's little traveling taking place, it's a major compression factor on the wholesale business.
And then, the second reason is largely due to the Russian-Ukraine situation because we stopped shipping, as you know, we will – I think one of the first brands to stop shipping into that region and, therefore, it put considerable pressure on the wholesale business. So, those are the two factors as to why you see it being broadly stable.
It's Louise Singlehurst from Goldman Sachs. I think just two. Maybe if we can start with Jonathan, if I could do. This is probably the only occasion we can actually ask about your initial kind of 100 days. You're a few days into that first plan. But we've all asked questions about merchandising supply chain, I wonder if you can talk more holistically about the view coming into Burberry, the top three priorities, what excites you most about Burberry over the next kind of several years ahead.
And then, secondly, for Julie, we've sat in many years of presentations at Burberry where we've been really focused on the cost saving plan. That's always been the topic of discussions, particularly from your content, Julie. Today, there's a lot more mentions of investment, investment for the future. When we think about the margin and that margin target of around 20%, and we're not far away from it, is it fair to say there's just a lot more flex in the system now. So, there's a lot more ability to put that investment back into the brand to drive that top line that we haven't probably seen in the last five years.
First, the top three priorities 100 days in. Again, we definitely will be coming back to that. But, clearly, the three areas for me to focus on, and there was already some clear ideas in place. And I think I can help enhance that and accelerate that. It's brand. Really, really focusing on making sure that we continue to elevate the brand. That journey has clearly been well executed, and we're in a very good place. Product, I've mentioned earlier, lots of opportunities on products. We will continue to build on that. And then, also just touching on the retail. 80% of our business is retail. We are a very strong retail company. I've been also very pleased to come into a company with a big, strong retail network that's been also refurbished. But also, we've also exited some of our core performing stores. So, I think our retail positioning is in a good place.
And then, one of the very nice surprises for me has been the quality of the retail teams. Obviously, externally, I've been really looking at what the brand has been doing on the products and the marketing activations, not so much on the retail side. But now I'm here toward a number of stores, there's been on the – probably, I would say on the back end, a huge effort in terms of retail excellence. And I can safely say that we are in a very good place here, very passionate teams, highly engaged. I've also been impressed with the blends that we have in the company between new talent coming from the outside with good, strong luxury experience, but also there's a lot of people here that have been for a good time with us, huge knowledge of the brand and equally passionate, actually, which is often very rare in a business. There's a huge amount of positivity here. So, I think that's been the biggest call-out.
And I would really like to call out our retail excellence teams and our HR teams for driving this because, as you know, it's not very easy to really, really pick up – when you're refurbishing the stores and investing a lot of money into it, it's often – sometimes you can forget about the quality and the focus of our retail team. So, I think that has been really impressive to me and looking forward to, again, building on that.
But, again, just to conclude, on that point, for us, obviously, we've got some immediate challenges now with the macroenvironment. But it will really be about how we can build on that and continue to grow the top line, I think, will be our focus.
There's been a real focus, I would say, in reorientating the cost base of Burberry. As you know, we have streamlined many activities in what you may call the enabling areas. So, as one example was we created Burberry business services as a captive in Leeds. And what we've therefore been able to do is pivot the cost base more towards some of the commercial areas in the business. So, there has been significant investment in the business, although it may not be visible a number of years ago. Within it, there was a lot of change within the composition. It's a bit like the change in the composition of the sales line. Similarly. So, over the last 12 months, you can see our OpEx base has grown closer 20% CER like-for-like. So, there's been a big step up in the OpEx.
And as you saw from the margin bridge, you can see the degree to which the business is capable of leveraging. So, 500 basis points could have come through into the margin this year. But we've chosen to reinvest over 300 basis points of that back into the business. So, we'll continue to make those judgments. But we also believe the business is easily capable of the margin target we've set. We do believe that. And the gross margin, we've done a lot of work to protect that and keep that at around the 70% level. So, we think it's achievable. Yeah.
Carole Madjo from Barclays. Two questions for me, please. The first point to follow-up on the US market. There seems to be some growing concern about the, I guess, macroenvironment in the US in terms of inflation, stock market volatility, et cetera. And when you think that your consumer base has been really boosted by new and young consumers, do you see risk of this cohort being a bit less sticky, a bit less resilient, in case of macro slowdown? That's the first question.
And the second one, just to come back quickly on your new store concept. You gave us some target for frequency three, but how should we think about it for the midterms in terms of new stores being developed?
I'll take the US question. Obviously, as Julie mentioned, we had a very strong quarter in Q4 last year. We've still managed to have a good improvement in this quarter. There's definitely, we believe, from our brands' perspective, still more opportunity to grow. We actually plan to invest more money in terms of our marketing spend into America this year, continued store refurbishments. And, obviously, it's challenging times at the moment, in general, but we're also confident that the way we're progressing with our merchandising strategy, with the store refurbishments, we think we're going to be well set for future growth going forward.
I think in terms of the question about the stores, so we're planning 65 in this coming 12 months. So, the cutbacks we're expecting to be around £170 million, £180 million. So, you can see we're stepping up the CapEx a stage further.
Our objective is really to roll out the new store concept, which is proving to be successful in terms of clientele that are coming, the AUR that they're spending, the link selling that we're gaining in those stores. It's a more elevated experience for the consumer. And that's really what we're very focused on. So, we expect to rapidly – it's one of our key strategic objectives, is to roll out that new store concept, as quickly really as the architecture team can possibly manage to do it. Because it's a real – we think it's a real value driver for the business.
Chiara Battistini from J.P. Morgan. Just following up on the store concept and also concept, I was wondering whether you could give us some updates on how your KPIs of the stores are actually changing. If you can say, what kind of space densities uplift you're seeing and what kind of conversion you're seeing now that some of the biggest projects have been done?
And then, second question on your consumer. And I was wondering if you'd give any color on how to think about your exposure to a more aspirational consumer versus a rather affluent consumer, if you feel exposed to this aspirational consumer that might be saving to buy into luxury versus the proper luxury consumer?
I think on the store concept, it's important to note that we're only about six months in. As Julie called out, we've seen a good improvement in our AUR. We've also seen a better shift on the accessory sales – from our accessory sales in our old store concepts that we've been pleased with that. We've also seen a much higher level of new customers coming into those stores. So, the early indications are that we're in a good place and we really do believe that we can continue to build on that and, more importantly, as you know, the ultimate objective is to really improve our store productivity and our sales densities. Still a little bit too early to give a true a true outlook on it.
Just to add to that. It's probably worth knowing that we target around a 25% return on the stores when we do a new capital appraisal. And the majority of the stores that we've put in place are already ahead of those expectations.
And what we also do is we review the performance of the new stores relative to neighboring stores that haven't been put in the new store concept, so we can compare. It's not exactly like-for-like, but it's the best we can we can do. And again, this is where we've got the customer data from in terms of the higher levels of spend and the higher degrees of link selling that we've obtained in those, hence the need to and the desire to accelerate that program as much as possible.
And then, in terms of the consumer, it varies. We look at the socioeconomic pyramid when we're looking at our consumer and patterns. And there's certainly been a rise in the higher levels of the consumer, but also we've had considerable business this year from new consumers that have come to the brand for the first time. And we've particularly seen that in Americas, we've also seen it more recently coming into EMEIA because it's now largely a local business. And then, obviously, before China was locked down, China and Korea were the big beacons of new consumers coming to the brands, largely driven in Asia by the leather goods and the outerwear. They were the very strong performers in that in that region.
This is Elena Mariani from Morgan Stanley. I have two questions for Jonathan. The first one is about your background. So, you come from a very long experience with Alexander McQueen, a relatively small brand in a large group and then more recently with Versace. So, can you comment a little bit about – I know it's early days, but the difference you see between working in a large group, large conglomerate versus coming into a mono brand, like a standalone brand? You know very well that the industry has been showing a sort of divergence of growth between the large groups that have been able to capitalize on various things and then the smaller brands, the mono brands have been struggling a little bit. So, what's the difference, in your opinion? Can you comment on this? And do you still feel that mono brands and smaller companies can still have their voice heard in terms of, like, investment firepower, communication?
And then, the second question is about the creative situation at Burberry and the creative director. You've been clearly impressed by what has been achieved so far. And we can see the results. There's no doubt that the quality of the business has improved, the products have been completely transformed. You will probably know as well that part of the luxury audience has also partly been puzzled by the move towards fashion and the change in D&A of the brand. So, some people have been saying that maybe Burberry walked a little bit away from the British heritage that they used to have. So, what do you think about this? Are you seeing things differently? And overall, besides all the good things that you've mentioned, is there anything that maybe is an area of improvement that is standing out that you see clearly and you'd like to change or work on?
Well, comparing the three brands, I think that's not really something to do in this forum. But all I can say is that I'm very excited to be here. It really felt like a real natural fit for me to come here. We've said that I've had a history with Burberry, but I have had a long history with Burberry. I feel like sort of really been in touch with the brand since my days at Harrods. So, it was really an honor to come here and join.
The incredible thing for me is this is one of the top luxury brands in the world. And so, it's an incredible opportunity for me. I've been here for two months. I feel very comfortable since I've been here. I feel that I can – as I said earlier, we've got a great team with incredible backgrounds. I think that my experience in the two brands that I've worked for previously, one being a British brand, one of a big group, one being an Italian luxury house, embedded in luxury, there with a with a good industrial operation as well. I think what I've learned from there, I can bring here and help support the growth that we have here.
With regards to Burberry being a standalone brand, actually, I don't see anything wrong with that. I think it's a great establishment. One of the things that I'll definitely call out in November is we are very fortunate to be in such a strong position as a great British brand. And this brings a lot of opportunity.
Again, sort of leading into your next question. If you saw Riccardo's last show in March, he picking out the DNA of the brand now. I think this is important. I definitely feel it's something that we will continue to build on and develop. It's definitely a call out. But also, I'd recognize that there was an opportunity four years ago to make Burberry more international. And definitely that was the strategy that was outlined. Unfortunately, my last trip to China was well over two years ago, obviously, but I remember traveling and seeing the Burberry activations in China, particularly on the marketing side and actually really no idea what was going to happen and I will be here now. But I was really impressed with the shift. As you know, the Chinese consumer, they're fashion forward, generally, the luxury consumer is a little bit younger. And I actually noticed it. And I think that's been a real benefit for the brand as we really start to work on being the fact that we are a British luxury heritage brand, but also with a contemporary twist.
Sarah Butler from The Guardian. I just wanted to go back to price. And you mentioned that you put prices up on luxury goods by around 8%, 9% in May. Is that now, are we talking about?
And when you say you're going to put prices up again now, can you say what sort of order you're putting them up by and why you're focusing on leather goods? Is that because that's where cost inflation is coming through or where you see elasticity in the market and opportunity to raise prices there where you can't raise them in ready to wear? And what do you think the luxury consumer reaction to this inflationary environment is? Will their spending be depressed or you're not expecting them to be affected?
Just to clarify, it was May last year that we made the change and then another change at the beginning of this.
In terms of leather goods, because we deliberately set out a strategy to elevate our leather goods range, and I think, as you know, originally, our bags were selling for around £600 to just over £1,000 and we wanted to move them into the £1,000 to £2,000 range, and we've been very successful in moving them to some of the – the top leather bags now are retailing just below £2,000. So, we've made the transfer successfully, but we wanted to take it in stages. And the first thing was we purchased every manufacturer a number of years ago. So we wanted to build our own capability. And then we also want to basically take it gently in a way – because we were ready to wear and we were moving more into leather goods, we wanted to move the prices, so that it was taken steadily. And that's basically the strategy that we've been embarking on.
The process we've been pushing the leather goods up, there's been no response – adverse response in terms of consumer response to those prices. As Jonathan mentioned, the Lola has been one of the most successful lines. So, I think it's a testament to the quality of the bags.
In terms of the consumer and the luxury environment generally, I think it's the sector that we're operating in. We're still seeing robust demand for the products. As we mentioned, because China was closed for the latter part of the fourth quarter, if you strip that out of the business, the rest of the business has been growing in the 20% range. So, we're still seeing that underlying demand. Europe is really strongly growing at the moment. America, the growth rates are falling, but this is partly because of the extremely high base in the prior year now. Yeah, overall, we're seeing it positively.
It tends to be the more immune part. To these types of situations with inflation and cost of living, it tends to be the last sector to be impacted. We're much more impacted by real estate prices and the stock market. In terms of the correlation with various macro factors, those are the two main factors that we need to keep an eye on.
Unidentified Company Representative
I have a question that's been emailed in from Thierry Cota from SocGen. Could you explain why EBIT was down 5% in the second half versus sales up 10%, whilst the gross profit was up 11%.
Hopefully, Thierry can hear me. But the main reason is really back to the question that Louise raised earlier. So, it was really all about significant investment that we made in the business in the second half. So the cost base grew just shy of 20% in the second half. There was a lot of activations, popups, we also opened Plaza 66 in November. So, that cost comes through at that point. We had major activations both in China, and you've seen some of the examples we had in LA during the course of last quarter. So, Jeju in Korea was in the third quarter. So there's been a lot of, I guess, cost put into the business to be able to talk more about the Burberry brand externally and engage and excite consumers.
That's probably – we probably had time for questions now. So thank you, everybody, for coming.
Thank you very much. Thank you.