Burberry Stock

[Audio Gap] Performance of our silk scarves. At the same time, we're extending our product authority into ready-to-wear and women's bags. Overall, and for the first time in 3 years, we saw growth across our womenswear, menswear, accessories and children's wear divisions. We're seeing a positive customer response to our product and pricing strategy. We are successfully offering value for money in a luxury context across each category with good, better, best pricing tiers. This is supporting our quality of sales through growth in full price and lower markdown year-on-year.

We grew our customer base in the quarter with Gen Z customers up double digit for the group. We continue to improve store productivity through clienteling and cross-merchandising supported by the rollout of category destinations, including 97 Polo galleries launched by Father's Day. E-commerce showed good growth, up mid-teens in the quarter. And finally, we have increased half 1 FY '27 wholesale guidance, reflecting the positive response from our partners.

Moving on to the quarter's retail performance. As mentioned, comparable retail sales grew 5% in the quarter. The contribution from space was a 1% headwind, resulting in retail sales growth of 4% at constant exchange rates. Currency represented a 1% tailwind with retail revenue landing at GBP 455 million, up 5% at reported exchange rates.

Turning now to regional performance. Americas delivered the strongest performance in the quarter with comparable retail sales growth of 12%. This was supported by local spend and broad-based customer acquisition. Mother's Day was particularly successful for us in Americas, driving customer engagement and growth in our bags business. Greater China grew 9%, supported by local spend and particularly good growth in Gen Z customers.

While the operating environment in China remains mixed, our actions are driving outperformance. Asia Pacific grew 3% in the quarter. South Korea continued to perform strongly, growing 11% on a more challenging comparative base with growth supported by both local demand and tourist spend. Meanwhile, Japan declined 2% and impacted by continued weakness in inbound tourism from Chinese visitors. EMEA declined 3%, reflecting the ongoing impact of the Middle East conflict and lower tourist spending. Tourism in Europe was impacted by the Middle East conflict. However, despite that, we've seen good trends from American visitors and encouraging full price sales. Excluding the Middle East, the region declined by 1%.

Turning now to our strategic progress across brand, product and distribution. On brand marketing investment is sustaining brand momentum and supporting sales. Our port traits of an icon campaign brought new customers to our brand with a 19% increase in new rainwear customers. Our high summer campaign featuring the Hansa G swimwear collaboration supported a doubling of swimwear sales in the quarter and a good spot supported growth in house check bags and polos.

In addition to global campaigns, we have continued to celebrate relevant local content with the launch of the first installment of a 3-part short documentary series created in partnership with Chinese national geography. The series showcases brand ambassador, Chen Kun exploring China's natural landscapes in Burberry Signature outerwear. And to complement our high-summer campaign and swimmer collection we extended our brand codes through hotel takeovers in Ante, Bangkok and Athens.

In product, we continue to build on our authority in the categories where Burberry has the greatest authenticity. Outerwear grew double digit during the quarter, supported by strong demand for heritage and trans seasonal products, including summer weight outerwear such as our tropical gabardine range and our short Mayfair trench. We've also been encouraged by the performance of silk scarves in these warmer months. We're extending our momentum across product categories outside of our hero categories with particularly strong performance in knitwear, Polos and swimwear in this quarter. And we're seeing good performance in women's bags overall driven by growth across several families, including the Cotswolds, the House Check and Horseshoe.

In distribution, we continue to make choiceful adjustments to our store network, including investing in a new location on Via Montenapoleone in Milan which is set to open in FY '28. The rollout of our category destinations remains on track, supporting store productivity and cross-category merchandising opportunities. We launched 97 Polo galleries by Father's Day, and we'll launch trench destinations and cash measures in the second half of the year.

Finally, we continued the rollout of a client-telling tool. This tool enables a more intuitive and user-friendly experience for our client advisers while also allowing improved planning and productivity in store and a more engaging customer experience at scale. Turning now to the outlook. As we look ahead, we are encouraged by the progress of Burberry forward, and we'll build on it to drive performance and deliver sustainable long-term value. In the full year, we expect to make further progress on our financial ambitions, including delivering revenue growth and margin expansion in line with expectations. We remain mindful of the uncertain geopolitical and macroeconomic environment and its potential impact on consumer confidence.

To help you with modeling, in FY '27, retail space is expected to be broadly stable. As I noted at the start of the call, wholesale revenue is expected to grow by a high single-digit percentage in the first half of FY '27. And an increase from the mid-single digit expected at the start of the year. Annualized cost savings are expected to reach GBP 100 million, of which GBP 80 million were delivered in FY '26. We expect restructuring charges of around GBP 5 million and capital expenditure of approximately GBP 120 million. Based on the 26th of June spot rates, currency is expected to provide a circa GBP 20 million tailwind to revenue and have broadly neutral impact to adjusted operating profit.

We continue to expect an adjusted effective tax rate of between 27% and 30%. As we move through the year, we remain confident that we can build on the progress we have made in quality of sales, continue to improve performance and drive sustainable long-term value. And with that, we will now be happy to take your questions.

[Operator Instructions] First question comes from Anne-Laure Bismuth with HSBC.

I have 2 questions, please. The first one is on the sales by National. So can we go back to the performance by our client cluster and share a bit more color on the group by nationality, particularly for the Chinese cluster and the evolution between onshore and offshore versus Q4.

And my second question is about the retail like-for-like performance for the rest of the year. So as you mentioned, you expect to deliver revenue growth in line with consensus which is consensus at plus 5% for the full year but implying roughly the same growth for the rest of the year, but the basis of comparison is getting tougher through the rest of the year. So what gives you confidence you can continue to deliver a solid performance through the rest of the year? What are the elements in terms of product category full price sell-through that is supporting that outlook?

I will start with the clusters and then we'll talk about the outlook. So look, in terms of clusters, I mean the first thing I would say is that the comp growth overall, we're certainly seeing a really good growth in local customers everywhere. If we look at regions, I mean, you'll have seen Americas was very strong, both in the region and by cluster. We saw growth in locals and in tourists. And the 1 thing I would call out there is that certainly, we've seen Americans traveling to EMEA. So I think the strength of the brand locally is actually having a really good halo effect in that they're coming to Europe and they're really wanting to shop with Burberry.

The EMEA region was down, but the EMEA cluster was up Again, if I look at the region, I would call that locals improved. So they were down in Q4, but locals were up in Q1, no surprise. You've heard it from everyone, tourists in the EMEA region were down. But really, that's very much the impact of less Asians coming over, clearly, with the Middle East conflict. That is having an impact on that travel hub. So we're seeing less tourists from Greater China and APAC. But as I've just said, American tourists in EMEA were certainly very positive.

In the Middle East region, clearly, now we're dealing with 1 month of impact -- with 3 months of impact, sorry, rather than 1 but we did see a bit of an improvement in locals from Q4 to Q1. Greater China, very much driven by locals and intra-region tourist shopping. And the cluster there, we talked about it being up mid-single digit in Q4. No change there, still up mid-single digit in Q1 and the APAC region driven by both locals and tourists.

Do you want me to take that?

I am sorry.

I'll take the second part.

Yes, absolutely. Go ahead, Josh, with the second question.

No worries. Anne-Laure, today happens to be my second anniversary at Burberry in fact. And sitting here today, with our fourth consecutive quarter of positive comps. We're looking forward with clarity and confidence that the Burberry Forward strategy is working. This was our first print where we had women's, men's, accessories, and children's wear, all 4 of our divisions, positive comping together. And we get the confidence because we've had a very deliberate product strategy, and we're seeing the benefits of that strategy and the building blocks of that strategy come through in the financial performance of the business.

So we've always said in product, we would lead with outerwear and scarves. And a big, I think, question that many of our analyst friends had was around the seasonality those businesses. And we've been very deliberate in outerwear in terms of having a seasonally appropriate offer for all 4 seasons of the year. So in this quarter, we had very strong sales of our new tropical gabardine introduction. On the backs of Portraits of an Icon, we were also selling these lighter-weight tropical gathering items in the quarter, shorter trenches like our Mayfair jacket.

And then, of course, all of our lightweight nylon jackets as well this is the peak time of year, and you can see the growth that we've had in outerwear was really from those different building blocks [Audio Gap] about extending that authority to silk scarves, which were really a highlight in this quarter as well. And make this a 12-month a year business. We built on that heritage this quarter with the Hansa collaboration, which helped double our swimwear business for women and for men. In in men's casual ready-to-wear. A polo shirt is something where we had great authority in our Eddy Polo shirt. I remember talking to all of you a few years ago and saying that we had taken that out of the collection at one time.

Now it's here and available in our Polo Galleries in 26 options. And those moves are also driving productivity in our stores when we introduced the scarf bars, when we introduced the Polo galleries, we're seeing productivity growth in our store network, which I know has been something very important for our analyst community and very important, frankly, for us to drive the productivity of these spaces. We'll be building on that with destinations for trenches going forward.

Also, outside of our core, I have been very reticent to talk about this over the last quarters until we had real proof points. But now handbags, women's handbags are becoming a more meaningful part of the business. And this has been a very deliberate strategy. of finding our sweet spot with good, better, best pricing in a luxury context. We started the quarter -- or in the middle of the quarter, we had a very positive Mother's Day in the Americas where we were up double digits in the handbag category, but we have strength in women's handbags now across the geographies. And that's attracting new customers to the brand.

And I think all of these initiatives help reaffirm my confidence of Burberry's place in the market as a luxury brand with broad universal appeal. As the luxury customer is looking for great value for money, whether that's a scarf for GBP 195 or a beautiful cash mirror trench for GBP 4,000 or a leather trench for GBP 8,000. They want great value for money and to feel like they're getting a product with real authenticity. And so there's never been a better time to be Burberry and to have our unique position in the market.

Josh, you were referring to space productivity improving. I wonder if you could give us a little bit more granularity on that front and how you are satisfied with both traction in what you're bringing to the market as well as rightsizing some of the stores that were diluting retail space productivity as far as I understood.

My second question is on brand excitement and getting Burberry at the center of the stage. I thought the initiative you're taking in China is impressive. It dovetails with the DNA of the brand. I wonder if you have thought about the pipeline of initiatives like this that could potentially reenergize the excitement and the buzz around Burberry. My understanding is that you've done a lot to get the foundation correct to get the market position correct to go back to Britishness and the icons.

And now that you have the foundation right, you could potentially work on that to get Burberry even more exciting. And I wonder if you have any input that you could share on that front?

Lastly, my usual focus, I guess, how is off-price proceeding? And are we right to understand that this is now less important than it had been in the past? And can you give us any granularity on that?

Yes. All good questions. Do you want me to take that, Kate, do you want to start?

I start with the productivity space [indiscernible].

Perfect.

So yes, just on your first point, Loic, I mean, obviously, with comp plus 5% in Q1 and Q4, space slightly down absolutely indicates the positive trajectory of our store productivity. And look, we've guided broadly flat for the year. But within that, we've always been very clear that there will be movement as you saw in the last quarter. So absolutely moving out of nonproductive stores adjusting space where we need to. You want to take just Josh the second?

Yes, absolutely. So in terms of brand excitement, so you're absolutely right. We have worked really hard to build the foundation. And we are very excited about the momentum we're having in the marketplace. We had an extraordinary fashion show this -- for this winter collection and the campaign that accompanies it. I believe, will attract new customers to our brand. We saw that also with our Portraits of an Icon campaign specifically which had 23 global celebrities, and we used that as really an anchor to our 170th anniversary celebration.

As we move through the year, we have some particular other initiatives that are happening. Burberry is this unique British brand that has so many stories to tell. And we are really at the nexus of speaking to our heritage and innovation. So in the fall, we will have a we will have a special display on the trench at the V&A in London. And then as we move later in the year, we will cap off our 17th year with an extraordinary exhibit in Shanghai to keep that drumbeat of activities with an emphasis yes, on our hometown in London, but also on the Chinese customer and the [Audio Gap]. We are going forward with confidence that the best is yet to come.

In terms of the off-price, component. I think throughout our business, what you'll notice is the quality of sales improving. Whether it's in our full-price channel or in our outlet channel, the quality of sales is improving. We had less markdowns for this season because we had higher full-price sell-throughs. The customer is liking what they're seeing at full price, which require -- which is not requiring the amount of discounting and the type of markdown activity we did last year. So that is very much under control. And while we don't comment on the specifics of the outlet performance versus the full price performance I would say that the outlet village is particularly in Europe, continue to be very challenged with traffic. And so the performance that you're seeing is really led by the full price channel.

A little more granularity on the full price channel and particularly within EMEA because that is a diverse market, we are seeing double-digit growth right now in our flagships in London and Paris. And those are being fueled by both the local customer, but also an influx of the American tourists. And so we're seeing the halo from the marketing investment that we have done in the U.S., literally traveling across the pond as those customers are spending more, engaging with us more in these cities. And as a signal of our confidence, today, we're announcing our new flagship in Milan, via Montenapoleone. This is a return to Montenapoleone where we left a few years ago to a really prime space, right, near the corner [indiscernible]. And you'll see the latest expression of Burberry in that environment.

You also made a comment about the space reallocation in terms of productivity. We have several good examples of that around the world, one relatively close to home in where we exited a large aging store that was not particularly productive in Brussels, and we moved to a better location, which was which is smaller. And this new store has some of the visual merchandising and product destinations like the scarf bar and The Polo Gallery, and we're driving a much higher productivity in this space.

And so you'll see examples of that really like that throughout the world, including at our Regent Street flagship, where we will have more to share in due course, but we've given up some underused back-of-house space in a former restaurant that was attached to the store, and we're going to be able to reformat the space in that very important store, which will be more productive in less square footage.

We now turn to Antoine Belge with BNP Paribas.

Yes. It's Antoine Belge at BNP Paribas. So 2 questions in the game. First of all, on the you highlighted the performance that you're achieving is really reaching out to most categories. But by region. And I understand that macro might be different. We had a very strong U.S. and in just to mention a few. So I don't know if there is something that would explain why you're doing much better in U.S. and Greater China than Europe? Or if you have any thought on that? .

And the second question is about the share price reaction today on, I would say, in line number. So it seems that there could be a seasonality in the margins, starting with the gross margin. So if maybe we could understand why right, that's the case, especially it seems that from the previous question, the sell-through are quite good. So I'm not sure I understand why the margin, especially in H1, I would be -- maybe a bit below what people expected. And also, since you're happily confirming the consensus for the EBIT for the full year, which I think is GBP 246 million. Could you maybe mention some of [Audio Gap].

Calling out, in particular, in EMEA, where we are now seeing locals up. And of course, they were down in Q4. So I would say quite the reverse actually. We're seeing really good traction in our European cities. Really, the reason for the EMEA negative overall comp is, of course, the tourist situation. And that really -- we're seeing strong American tourists, as Josh mentioned. It's really the lack of Asians, of course, with the disruption of the Middle East travel hub that really is continuing to affect tourist flow into EMEA. So I think really actually encouraged by the performance in European cities. So look, on the second point on the gross margin phasing, I would guidance remains.

I think what you're referring to really is a phasing point. And this is actually about the fact that we are now returning to a much more normalized phasing. And historically, pre all of the disruption of the past couple of years, we've always generated a higher gross margin in the second half as compared with the first half. And actually, -- this reflects -- there is a seasonal nature to the business. We do have more revenue in H2 versus H1, and we do tend to build up inventory ahead of our peak period. And therefore, naturally, you're going to get a little bit more provisioning in the first half as well.

So growing, which is what we're now into growth mode, we are growing this business. The business is normalizing. So you would expect higher gross margin in the first -- in the second half versus the first half. But I would say for the full year, all as expected, you will see margin growth. So I think that really is going to play into a higher profit in the second half versus the first half. In terms of consensus, yes, we're happy with the GBP 246 million. There's a broad range out there. This is just Q1.

You probably wouldn't expect me to start trying to move consensus at this stage. But are we feeling more confident whether it's in the short and indeed, more importantly, the longer-term trajectory for Burberry? Absolutely. Just to reiterate some of the points that Josh has made, we are continuing to see improvement quarter-on-quarter. We are seeing more and more proof points that the strategy is working. And therefore, whilst we are not changing consensus at this early stage of the year, we are certainly increasing in our confidence in Burberry forward.

Maybe just a follow-up very quickly. So gross margin, I understand so stronger in H2 versus H1. But for H1 of this year, will it be down year-on-year compared to H1 of last year?

It may be down slightly. I mean, probably may be down slightly.

We now turn to Thomas Chauvet with Citi.

The first one on China versus Chinese. It's been 3 consecutive quarters that Greater China LFL have outperformed the Chinese cluster by about 5 percentage points. So that suggests Chinese traveler spend outside Greater China remains quite negative in Europe and Japan. Do you think it could reflect a shift in shopping preferences where Chinese consumers are responding positively to initiatives in China, so localized marketing, client events and perhaps the price gap is irrelevant and the Chinese consumer starts to ignore the higher retail price they face when they shop at home versus abroad?

My second question on licensing. Could you comment on the [ Coty ] destocking of all Burberry fragrances lines that was a drag on royalty sales and profit last year. Will that be largely over after the first half? I see consensus licensing is still plus 1% for the year. Could you also update us on your relationship with Coty at the time that just returned the Gucci license to Peering a year earlier than planned. Does that put you in a position of strength with Coty as one of their most important partners to strengthen the business from here or to reconsider certain aspects of the relationship of the contract?

Thank you, Thomas. Josh, do you want to talk a bit about the China market and then I'll licensing.

Sure. I think what we're seeing in China is actually very positive. And we're very pleased to see our product and marketing continuing to resonate in one of our largest and most important markets. And we're seeing their response both to our big global initiatives like Portrait of an Icon, which was very focused on our trench category. They were among the regions, which were first on the tropical Gatherdeine trenches, which have contributed a great deal in this quarter and of course, lightweight jackets as well as an anchor. Simply a consequence of the travel patterns. And we have seen disruption in the typical Chinese and Asian travel patterns to Europe ever since the start of the Middle East [Audio Gap] shopping in Europe. I think we hear this from our department store partners in Europe as well that this isn't the era of the big Chinese tour groups coming to Europe, and it's more individual shoppers.

And so the volumes of tourists are down coming to Europe, but they're finding what they want at home. And frankly, when you walk the malls in China, you're getting, in some cases, the best assortment in the world, too. And it happens to be we just launched our Chinese Valentine's Day capsule this week. And you have all of these capsule collections that ourselves and peer brands are doing that are giving the Chinese customer more and more reason to shop at home. And we welcome that. We're -- we will welcome the Chinese consumer wherever they want to shop.

And then just on your second question, Thomas. So you'll obviously remember that licensing revenue did decline 9% in FY '26. And that was impacted a little bit by the soft fragrance market. But as we pull that at the time, there's also this lag in brand alignment between our licensing partners and the current Burberry forward setting. I mean, we've addressed that. So we definitely expect an improvement from the minus 9% [Audio Gap].

Yes? We don't comment on the specifics of our contractual agreements or discussions. But what I would say is that we are working very closely with Marcus Strobl and his team. And specifically, as Kate said, there is a lag time in the licensed categories to reflect the evolving brand expression. And our goal is to work closely with them. during this period so that the consumer-facing brand expression of the UDN fragrance lines -- aligns with what you see in our fashion. And we have some very exciting developments in the year ahead.

We now turn to Carole Madjo with Barclays. Please go ahead.

Two questions on my end as well. The first one, can you come back maybe on the key retail metrics such as AUR, traffic, sales conversion and just share [Audio Gap].

Yes, Carole. So I think I'd start in terms of metrics reasonably similar trends to what we saw in Q4. So really very encouraged by what we're seeing in terms of conversion. So product resonating and fair to say traffic is as it is for the whole industry traffic remains challenging. But of course, we're very pleased with our results, and that is all down to a very strong conversion.

In terms of OpEx, so look, again, no change to the full year guidance here. We remain committed to broadly flat OpEx for the year. I think as we start to get into the real detail on the modeling detail or detailed plans of our customer-facing investment for the year. We may well spend a little bit more towards the end of the first half. I mean, I think it kind of right towards the end of the first half because, of course, we want to prepare for peak trading periods, so for festive, for Lunar New Year. So potentially a little bit more than H1 last year.

But again, I'm really getting into the detail here. We're just laying out our plans for the year. But the key is no change to our expectations of marketing investment for the full year, absolutely committed to flat OpEx for the year and gross margin expansion and revenue growth.

I will stick to two as well. So maybe, first of all, to follow up on the wholesale [Audio Gap] driving that I mean, I guess it's usually seen as a bit of a leading decade of the brand momentum. So yes, if you could just tell us if maybe there's anything one of the nature. As I think Antoine mentioned earlier, is the phasing, but then also the EBIT outlook, which you expect to be unchanged despite more positive effects and obviously, also that wholesale upgrade. So I'm just wondering I mean, is there really like a small underlying downgrade in there, which, clearly, I guess, that's how the market understands it, given the share price reaction? Or if you're just -- if you can trust you're just being extra cautious. That would be very helpful.

You want to take the wholesale one and give a more flatter there, Josh, and then I'll talk to consensus.

Sure. So indeed, we are very pleased with the wholesale numbers. And even more than the numbers, we're pleased with the underlying sentiment and what we hear from the wholesale partners. This is one of the few areas where we can get an objective benchmarking of our performance versus our peers. Because when the teams from Burberry stores come into our showroom, they have an open to buy and they will tell us what they think, but they have to buy Burberry. Our wholesale partners can buy any luxury brand. And they have been voting for Burberry with their open to buy.

And I think it's a couple of things. I think one is the strategy is working and they're seeing higher full-price sell-throughs from Burberry, and they really love some of the innovations and newness that they saw in our collections. So particularly, we have a cashmere shop that will be in our flagship stores and in many of our wholesale partners that will be anchoring our assortment for the festive period. And there was a lot of excitement there. There was a lot of excitement for new directional outerwear shapes that were linked to what Daniel put on the runway for the winter show, the styles that were derived from the runway expression.

So all of that was really positive. From a geographic point of view, we're seeing it across the board. Obviously, America wholesale is very important to us. And we've strengthened our presence there across our partners. The situation with Saks Global, now the Exemplar group has stabilized. We're actually going to be in fewer doors year-on-year with that group. But overall, even in fewer doors in America across all of our partners. This is another story of quality of sales. We had a strong around the world, there's a significant consolidation of the main wholesale partners.

So in Asia, the duty-free channel in China has really consolidated with the China Duty Free group. And we have a terrific relationship with the China Duty Free group. And again, that's based on the strong performance in their market. And picking up on what Thomas was mentioning before about Chinese shopping regionally. We're also seeing strong growth in Hong Kong and Macau, which are now being operated through Chinese partners in the duty-free area. And so that has been very positive for us as well.

And then in Europe, there's been a big consolidation with the Central group. And they are very strong partners with us [Audio Gap] All basically voting with their open to buy for Burberry, even though Wholesale is only about 12% of our business. We consider this leading indicator to be a great sign of the brand momentum and our resonance with the consumer.

Just to follow on from that and the question on consensus. I mean, as you've just said, firstly, we are very encouraged by the wholesale results. Yes, clearly, there's an underlying upgrade there. On FX, again, you're right, sitting here today. It's certainly less of a headwind than it was just 8 weeks ago, but it is a moment in time. And actually, I think that the pound over the last few days, it's literally strengthening as we speak.

So I think it's just too early in the year to move the outlook. There's a very broad range in consensus. And I just want to state is absolutely no underlying upgrade. In fact, quite the opposite. You asked me about being cautious. I think I would prefer to be cautious just 3 months into the year. But am I encouraged by how we've started the year. Absolutely. And I think our focus now is on execution and on delivering revenue growth and margin expansion this year and beyond.

So can I just follow up? Because I think maybe you may have had it back in that you said that there is no underlying upgrade. Did you mean there's absolutely no underlying downward.

Apologies. I actually meant -- yes, I meant this it was your question that apologies, there's no downgrade at all. So I think my point being, we're encouraged by wholesale, FX is a moment in time. We're really encouraged by our performance. So absolutely no downgrade. Apologies. Thank you for clarifying that.

We now turn to Grace Smalley with Morgan Stanley. [Operator Instructions]

Can you hear me?

Yes, we can hear you.

Great. So my first question, please, would just be I appreciate it's a sales call, but just to touch base on an update on your medium-term margin outlook. So very clear from your comments on this year on the margin expansion you expect but if you could also just come back to the medium-term margins and walk us through your confidence on medium-term margin trajectory and the confidence that you have to return to a high-teen margin over time. And how we should think about the building blocks to get there, so sort of what top line growth we need and how it's split between gross margin and OpEx leverage from here? So more 1 on the multiyear margin story than this year?

And then sorry, just to come back again on this H1, H2 gross margin dynamic, just given the amount of questioning -- questions you are getting on it this morning. Just on the inventory provisioning. Can I just confirm that your comments on gross margin etentially being slightly down in is not a function of increased discounting and that you are comfortable with your inventory levels, given all your comments on full-price selling, and it sounds like it's more a function of just normalization of the business and growth in the business and you're building inventories into kind of your expectations for growth in H2. If you could just double click back on that.

Absolutely. I mean, look, I think, firstly, in terms of the long term, I hope you picked up from our comments today that our confidence in the long-term trajectory business is certainly increasing. The strategy is working. I think with every time we come to talk to you, we have more and more proof points that Burberry forward is delivering. And ultimately, it is this that is going to drive the revenue growth. On the margin, absolutely, we've stated an ambition to get back to 70% gross margin. We were there just a few years ago. You saw a really good uptick in the year just reported, and we will continue with gradual improvement back towards the 70%.

Likewise, on OpEx, we've guided to broadly flat OpEx this year. And then you will really start to see the leverage coming through. So I think all of the building blocks that we laid out for the year just reported remain. And we are, as I say, our confidence is certainly growing on that. On the margin point, we are very comfortable with our inventory position. And I think as you've just heard, the quality of sales is really the point that we want to land today. Lower markdown year-on-year, certainly less discounting, productivity is growing. So you are absolutely right. This is just a point that we are now returning, if you like, to a more normalized level of provisioning.

So don't forget that during FY '25, we made significant inventory provisions. You'll remember, that was -- and we recognize the gross margin impact at the time. Then of course, FY '26, first half, gross margin did benefit from the sale of the inventory that had already been provided for in an earlier period. and that just naturally creates tougher year-on-year comps for H1 this year for full year '27. So your comments are absolutely right that we are -- it's not to do with inventory positions. We're very comfortable. We're in a cleaner position than we have ever been.

We now turn to Charles-Louis Scotti with Kepler Chevreux. [Operator Instructions]

I have two. One on the Middle East and one on e-commerce. The first one, you mentioned that trading with local customers in the Middle East improved during Q2. Was this improvement gradual on a month-by-month basis throughout the quarter? And also, could you give us an indication of where local demand currently stands versus last year? And what level of impact have you assumed in your budget for the next 3 quarters? .

And secondly, on e-commerce, it seems to be very buoyant. Could you remind us how large this channel is within your retail business and whether the strong momentum is broad-based across geographies. And I assume this performance is primarily driven by new customer acquisition. But could you provide some color on the mix between new and existing online customers? And has this contribution from new customers increased meaningfully in recent quarters?

So perhaps I'll just take the Middle East one first. So just as a reminder, the Middle East is just 2% of our global sales. when the conflict initially kicked off, we did have some stores closed, but they quickly all reopened. But generally, the Middle East for us, it's, therefore, not that material. And it is quite -- very much a tourist market. So I did make some comments that the local performance has improved quarter-on-quarter. But really, the main dynamic there is, of course, the influx is, of course, the influx of tourists.

Sorry, the second question on [indiscernible].

Do you want me to take that? So we're really pleased with the traction that we have in e-commerce. And it's -- in many cases, it's the front door for Burberry [indiscernible] to Burberry forward, earliest in the e-commerce channel. The channel is particularly strong in the Americas. And we're starting to see a younger customer come in through the e-commerce through the e-commerce channel. A lot of what we have been doing there is about enhancing the customer journey with more personalization and making sure that the content is really engaging and shoppable.

So a great example is how we used to style our product in a very almost clinical manner. And now we've been doing much more robust styling. We've been doing category destinations and the category destinations changed the experience around trench to show the full variety and to really have our heritage trench an area for our tropical gabardine trench. So you have stronger story telling, better visualization and a 360-degree approach.

We've also brought more the blend of art and science here to target our customers. And the good, better, best strategy is really working in e-commerce. When you go through and you look at the assortment, there are really key recruitment drivers here, and it's a place where we can bring to life ideas, creative ideas like our Hansa G collaboration, which was the anchor to our summer shop. So in a quarter like this, we saw an important uplift in transactions. And we're looking forward to build on this with all of our initiatives for the autumn winter ahead.

This concludes our Q&A session for today. I will now hand back over to Kate Ferry for any closing remarks.

Thank you, all of you for joining us this morning, and we'll look forward to updating you again with our half 1 results post the summer.

good morning, everyone, and welcome to our preliminary results for the 2026 financial year. I'm Josh Schulman, Chief Executive Officer of Burberry. And with me is Kate Ferry, our Chief Financial Officer.

One year ago today, we were in an early phase of our Burberry Forward transformation, deeply focused on stabilizing the business. Today, I am pleased to report on our progress.

This past year, has marked a meaningful inflection for Burberry. I am very proud of what our team has accomplished this year. We have returned to positive comparable sales with sequential momentum throughout the year and particular strength in Greater China and the Americas, both of which delivered double-digit comp growth in Q4.

We have reignited brand momentum with improved cultural relevance, attracting a new generation of Gen Z customers to the brand.

We have asserted our authority in outerwear and scarves, as reflected in the outperformance of these categories throughout the year. And as the year progressed, we saw that momentum extend into other categories.

And finally, we have improved the quality of our sales. delivering a significant increase in gross margin as well as operating profit while strengthening our balance sheet with a reduction in leverage.

My conviction that our Burberry Forward strategy is the right path to brand relevance and value creation is stronger than ever.

I will now turn it over to Kate to take you through our financial results, and then I will update you on our strategy. Over to you, Kate.

Thank you, Josh, and good morning, everyone. I'm really pleased to see the progress we've made with Burberry Forward reflected in our financial performance, particularly in a year where we've navigated macroeconomic uncertainty.

Let me start by highlighting 4 key points from the announcement this morning. Firstly, as Josh articulated, we've returned to comparable sales growth this year, which built sequentially through the year, culminating in plus 5% in Q4.

I'd call out particularly strong growth in Greater China, our largest region and also in the Americas, both up 10% in Q4.

Secondly, the quality of the sales growth, combined with our decisive actions to reset inventory has allowed us to achieve a substantial improvement in gross margin up 530 basis points at constant exchange rates to 67.9%.

Thirdly, adjusted operating profit has improved significantly to GBP 160 million and we're on track to deliver GBP 100 million of annualized savings by FY '27 with GBP 80 million already delivered in FY '26.

We've made these necessary savings thoughtfully ensuring that we continue to invest for growth, including an increase in marketing spend during the year.

And finally, our free cash flow has significantly improved resulting in a stronger balance sheet with reduced leverage. Our net debt to adjusted EBITDA is now 1.6x compared to 2.3x this time last year.

I'll now take you through a more detailed review of performance, starting with revenue by channel, and I'll refer to changes at constant exchange rates.

Comparable retail sales growth was 2% with a 1% reduction in space, resulting in total retail revenue growth of 1% in the year.

Wholesale revenue was down 4% in the year. However, we saw growth of 3% in the second half. And this second half improvement is an encouraging indication of our key wholesale partners confidence in our strategy.

Licensing declined by 9%, in line with our expectations due to the destocking of old fragrance lines in H1 and the longer lead times for our licensees to reflect the Burberry Forward strategy in their offer. As a result, total revenue for the year was stable at constant exchange rates and declined 2% on a reported basis.

Turning now to regional performance. Greater China accelerated to plus 10% in Q4, driven by local spend. Growth was 4% in the full year, with momentum building through the quarters.

EMEA was flat in the year. In Q4, the region declined 2%, reflecting continued weaker tourism.

The Middle East is a relatively small part of our business, 2% of global retail sales. Excluding the Middle East, EMEA's Q4 comp would have been minus 1%.

The Americas continue to see strong performance with the greatest sequential improvement in Q4, up 10% from plus 2% in Q3, supported by local spend.

Asia Pacific grew 3% in Q4. South Korea performance remained strong, up 13%, in line with Q3, supported by both local and tourist spend, particularly from Chinese visitors. Japan declined 6% in Q4, impacted by the continued reduction of inbound tourists. The APAC region delivered growth of 4% in the second half offsetting declines in the first half with 2% growth in the full year.

Across all regions, we're encouraged by strong conversion in our stores, which is allowing us to offset some of the industry-wide challenges with traffic.

Moving on to the income statement and staying with changes at constant exchange rates. As noted earlier, gross margin was 67.9%, up 530 basis points compared to last year. This material improvement is mainly due to decisive one-off actions in the prior year to reset inventory and we also benefited from a higher quality of sales with more product selling at full price resulting in lower levels of markdown.

Moving down the P&L. Adjusted operating profit was GBP 160 million, a significant improvement from the GBP 26 million reported last year.

Adjusted operating profit margin expanded to 6.6%.

Adjusting items related to the previously mentioned cost savings plan were GBP 45 million and we expect around GBP 5 million of one-off costs in FY '27, bringing the total to around GBP 50 million.

The net finance charge was GBP 66 million, broadly stable compared to the prior year.

And finally, adjusted EPS was 15.2p, a significant improvement from last year.

Free cash flow was GBP 141 million in the year, improving from GBP 65 million last year. Cash generated from operating activities increased by GBP 56 million to GBP 582 million due primarily to the increase in adjusted operating profit.

Working capital saw an inflow of GBP 41 million, driven primarily by an increase in payables and lower inventory levels.

Capital expenditure for the period was GBP 113 million. We continue to be disciplined, focusing on strategic investments with the highest return, such as the rollout of the scarf bars.

Borrowings were GBP 511 million, a significant reduction from the GBP 738 million last year following the September repayment of our maturing GBP 300 million sustainability bond.

At the end of the period, net debt to adjusted EBITDA was 1.6x.

Now moving on to the outlook. In FY '27, we expect to make further progress on our financial ambitions, including delivering revenue growth and margin expansion. We are, however, mindful of the uncertain geopolitical and macroeconomic environment and its potential impact on consumer confidence.

To help you with modeling in FY '27, we expect retail space to be broadly stable. Wholesale revenue to grow by mid-single-digit percentage in the first half of the year, reflecting continued confidence in our new direction from our key wholesale partners.

As mentioned, annualized cost savings will be around GBP 100 million with adjusting items of around GBP 5 million in relation to the restructuring charge.

Capital expenditure is expected to be approximately GBP 120 million.

Currency is expected to be a GBP 10 million headwind on both revenue and adjusted operating profit.

And finally, the effective tax rate is expected to be between 27% and 30%.

As we look ahead, we're encouraged by our performance, which sets us up for the year to come. And I'll now hand over to Josh to share an update on our strategic progress and future opportunities.

Thank you, Kate. When we set out Burberry Forward, we defined a clear framework to build brand relevance and value creation. Our performance this past year reflects disciplined, consistent execution of our strategy across all 4 pillars with the customer at the center. I am pleased to say our strategy is working, and there are opportunities for further growth.

Starting with our brand. Our strategy is to consistently communicate timeless British luxury through immersive storytelling, juxtaposing heritage and innovation. Our tentpole campaigns anchor our calendar alongside a continuous drumbeat of seasonal and product stories.

This year is Burberry's 170th anniversary. To kick off our year-long celebration, we launched portraits of an icon honoring the iconic Burberry trench, bringing together 23 global stars from the worlds of film, music, sport and fashion, ranging from Kate Moss, Teyana Taylor, Jonathan Bailey, Bright, Kendall Jenner, Jack Draper and Wu Lei, the campaign appeals to a diverse audience. They appeared in a series of bold portraits and short films, showing how the iconic Burberry heritage trench coat not only protects the wearer from the elements, but is also a vessel to express one's personal style. The content drove strong relevance and high engagement scores powered by social first storytelling. Launching in March, the campaign drove a triple-digit increase in earned engagement versus last year and strong double-digit increases in both earned media value and press coverage.

We amplified the campaign online and in-stores with striking window displays and pop-ups in key locations, creating energy and visibility around our most iconic product.

[Presentation]

More recently, we kicked off our high summer campaign, led by British actor, Simone Ashley and Tom Blythe as they capture life at the Lido. It's a clear expression of how our brand codes translate into the warmer months from the iconic Burberry check bikini to our best-selling men's Eddie Polo shirt.

We were also very excited to partner with British swimwear Pioneer, Hunza G, on a new swimwear collaboration. The collaboration brings together their signature Ultra stretch fabric with our Burberry colors in check, combining heritage and size inclusivity. The capsule launched just a few weeks ago, and we're extremely happy with the sell-throughs and our key wholesale accounts have been reaching out for additional stock.

Together, these campaigns underscore Burberry's enduring relevance in all kinds of weather. As summer approaches, we will launch a further campaign, capturing the unique energy and atmosphere of global sporting events with some of the world's most stylish fans.

Throughout the year, we will continue to celebrate Burberry's 170 years of British heritage through culturally relevant partnerships. In March, we launched a collaboration with the Royal Collection Trust. This included rainwear and scarves inspired by Queen Elizabeth, the second iconic wardrobe. We are also building on our partnership with the V&A with a dedicated activation this autumn that charts the evolution of our trench code. I hope to see all of you there as we celebrate the heritage of our most iconic product in September ahead of London Fashion Week.

Throughout the world, we are seeing our Burberry Forward brand strategy, resonate with customers.

I want to specifically share how we're using the power of the brand to drive growth in the world's 2 most important luxury markets, Greater China and the Americas. In both markets, we've harnessed the energy from their respective best of holiday activations as catalysts for broad-based customer engagement and acquisition. We've then followed up with a robust drumbeat of activities tailored to the markets. It's especially important to win in China, our largest market, representing over 30% of our retail sales. We made great progress over the course of the year in Greater China, which led our regions in overall customer acquisition, supported by strong double-digit growth in Gen Z, balancing investment across global campaigns and localized storytelling brings Burberry to life in a culturally relevant way. We launched our Lunar New Year content in December, which created great momentum.

Next up was portraits of the icon featuring a global cast, including prominent Chinese talent. Together, those efforts drove a 10% comp in Q4.

Looking ahead, we are further augmenting our China marketing calendar with a series of Burberry expeditions documentary films produced in partnership with Chinese National Geography, featuring local talent in seasonal outerwear, exploring China's natural landscape and historic sites.

In our second half, we will be bringing a large-scale brand experience to Shanghai as an extraordinary finality to our 170th year celebrations. We look forward to continuing to win in this most important market.

And in the Americas, we are harnessing the power of the brand with a client-centric approach. As you may recall, we had an outsized investment during the festive period, including the one-of-a-kind takeover of the Bloomingdale's flagship facade in New York City.

Building on this momentum, the team embarked on a series of local activations, including an installation by the artist, Serra Morris at the Miami Design District store. Further activations included an immersive winter pop-up at the historic Hotel Jerome in Aspen, bringing our iconic Burberry house codes to luxury customers in the mountains. And of course, we had Portrait of an Icon celebrations in locations across America, including our flagship on Rodeo Drive in Beverly Hills.

The balance between global and local, retail and wholesale as well as the strength of our team's execution on the ground has delivered a significant acceleration over the past 2 quarters and a 10% comp in Q4.

Looking forward, we are going to continue our focus on these 2 must-win markets while applying lessons to the rest of the world.

Moving to product. Our pinnacle moment is the fashion show. And for Winter 26, Daniel captured the energy of London after dark in a spectacular venue outside the iconic Tower Bridge, anchored by a range of outerwear, combining elegance and functionality. The collection received a great response from the press and from our retail partners.

In addition to the extraordinary pieces from the runway, some of which you see in the room right now, we are cascading the ideas and branding motives from the show across the broader commercial collection. And actually in the room right now, you see many of our runway styles and items from the commercial collection and see how they seamlessly come together.

The Winter 26 runway is a cohesive expression of timeless British luxury from start to finish. The extraordinary runway items speak to an opinionated fashion client and many of the commercial silhouettes inspired by the show to a broader array of luxury customers. We received very positive feedback from our opinion-leading wholesale partners across America and Europe, delivering the largest wholesale order increases within the Burberry Forward era. What we're announcing is the power of design, product and our marketing teams working together reigniting desire among our luxury customers.

Our hero categories continued to outperform in the year, scarves and outerwear both double -- up double digits in the second half. This year, we introduced new outerwear styles and also strengthen the trans-seasonal appeal of our iconic trench with the reintroduction of a lighter tropical gabardine, perfect for the warmer winter climates, warm -- perfect for warmer climates. Sorry.

To cement our authority, we are amplifying our quilts and down assortment for the upcoming autumn and winter seasons. And we have also reinforced our authority in cashmere and wool scarves and we are now expanding our lightweight silk scarf assortment to build a truly year-round offer. We see a significant runway of growth and opportunity in all of these categories.

Having asserted our authority in scarves and outerwear, we are pleased that this momentum is now extending into other categories. Our total accessory category was positive in the year with leather goods sequentially improving in the second half. We also saw growth from our wardrobing classifications in ready-to-wear, including knitwear, which we will build on in the second half by opening cashmere destinations in stores around the world.

In the first phase of Burberry Forward, our goal has been to align our pricing with our category authority. This year, we will continue to sharpen our price architecture to drive value for money in a luxury context.

In each category, we have a compelling offer at each price tier. So every customer can find the right option.

In trenchcoats, we have a range from our nylon taffeta Kensington trench at just over GBP 1,000 to our leather nubuck Castleford trench at almost GBP 7,000. And in scarves, we start with a skinny silk scarf at GBP 195 and go all the way up to our pinnacle cashmere capes over GBP 2,500.

Our merchants are ensuring that within each category, we have a range of product at good, better, best price points in a luxury context. The items on this page, whether they're in the good or the best category are some of the most important recruitment items in our business.

Our license categories are on longer lead times, and we are excited that in FY '27, we are finally starting to align our licensees with the Burberry Forward brand expression.

In beauty, you can see how we have updated our campaign imagery to feature British music sensation, Olivia Dean, capturing per useful energy in iconic Burberry trench against a recognizable London landscape. And in eyewear, we have moved with a niche -- we have moved from a niche aesthetic without a clear connection to our brand codes to a more recognizable and desirable expression that is consistent with our fashion message.

Across both beauty and eyewear, our latest campaigns now incorporate the same brand codes that you see across our portfolio, and we'll be benefiting from significant incremental marketing investment by our partners.

As we move from defense to offense and as we return to growth, we are evolving our operations to capture increased demand. At the same time, we are going to retain our discipline on inventory.

With deeper customer insights, we are making more focused bets, strengthening our speed to market improving our product availability and supporting our margin expansion. This will be supported by AI-enabled planning and inventory optimization to help drive efficiency and growth.

To underpin this growth, we have commenced a 2-year renovation of our Castleford factory in Yorkshire, the home of the iconic Burberry trench coat. The investment will modernize the site supporting the preservation and development of specialist skills, reaffirming our long-standing commitment to British manufacturing and craftsmanship.

Moving to distribution. Our strategy is about prominence productivity and profitability. This year, we made progress on driving our productivity and profitability in part due to our category destinations. We have rolled out over 200 scarf bars. These have become focal points of our stores, combining category authority with a sense of discovery. Collectively, these are exceeding their plan and driving store productivity.

Our polo calories started to launch in Q4, and we will have around 100 of them by Father's Day in June. These fixtures highlight the breadth of our men's polo offering. The Eddie polo remains a favorite and is now available in 23 colors, just in time for Father's Day.

Looking ahead, we will be launching our first trench destinations this year in an interactive concept that highlights our iconic product and helps the customer discover which style best fits their lifestyle. We will also be opening dedicated shops for cashmere in the second half, bringing together cashmere outerwear, knitwear and accessories in a dedicated environment.

By fiscal year-end, we expect to have nearly 400 category destinations across our store network, reinforcing our authority in our key categories.

We are amplifying clienteling, balancing, magic and logic, creating better connections between our client advisers and our customers.

In the second half of this past year, we piloted clienteling initiatives, including more sophisticated customer segmentation and AI-enabled recommendations to enhance their interactions and improve customer engagement. The pilot already had an impact on our performance in Q4, a positive impact on our performance in Q4, and we're now in the process of rolling out this new clienteling tool.

Looking forward, we're accelerating our investment in personalization with tailored messages and experiences at every touch point.

During the year, we built momentum in our e-commerce business, up in the high teens in Q4. We're seeing growth from an improved site experience, more robust styling and engaging storytelling. There is more we will do with this momentum.

In the year ahead, we are doubling down to accelerate growth. As this channel offers the greatest visibility across our full product range, it is the perfect place for us to showcase our product authority and our value for money in a luxury context, whether it's category destinations for tropical gabardine or for our summer shop, to my left, featuring broad assortments of swimwear, raffia bags and the perfect outfits for the warmer months ahead, we are leaning into the unique power of the digital channel to capture a broader luxury audience.

While wholesale remains a relatively small part of our brand. It is important for driving discovery and an opportunity for us to benchmark ourselves against other brands. As Kate mentioned, we were encouraged by the improvement in our wholesale performance, which is building confidence among our partners.

Our key partners are activating the brand, such as this recent trench activation at Net-A-Porter here in London. And our mobile scarf bars are popping up at luxury department stores and travel retail locations around the world.

At the same time, Instant's enhanced in-store environments across partners, including Saks Global, Bloomingdale's, Nordstrom and Gallery Lafayette are driving stronger sell-throughs. We plan to continue these strong partnerships to attract new customers to our brand.

All of this is underpinned by a high-performing culture. At the heart of our culture, is a creative and commercial alchemy that is powering our profitable growth. We've strengthened our design teams, our merchandising teams, our product development teams and our marketing teams with senior leaders that focus on our customer. You can see the results on our runway, and you can see it in our stores -- in our assortment with a more cohesive and coherent product range.

We continue to uphold our commitments to social and environmental responsibility. This remains an integral part of who we are, and it is important to our colleagues and our customers around the world.

Over the past year, we have made significant progress guided by our Burberry Forward strategy. We are seeing the impact on our business and our financial performance. We have returned to comparable sales growth with improved brand momentum and strong performance in outerwear and scarves, now extending to other categories.

Going forward, we are now focused on delivering sustainable, profitable growth, operating with greater discipline across the organization, driven by a mindset of saving to reinvest and fuel growth.

We're just getting started. My conviction that our strategy is the right path for brand relevance and value creation has only strengthened and I am more confident than ever that this extraordinary 170-year-old brand will continue to thrive as we progress toward our ambition of returning to GBP 3 billion in sales and beyond.

Just before we start Q&A, where Kate and I will take your questions. I want to introduce everyone to Jo Kennedy, who joined us in March and we'll be covering for Lauren Wu Leng's maternity cover for the year, and she is also off to a great start.

Thank you, Josh. Good morning, everyone. We will now take questions from our sell-side analysts in the room today and also those who join us online. If I could ask you to limit yourself to 2 questions so that we have time to get around as many people as possible. And if you wouldn't mind taking a name and firm before we get going.

All right. And I will start with -- can we go with Carol, please and then Grace.

Carole Madjo from Barclays. Two questions, please. The first one, can you maybe share some color on the key retail KPIs around Q4 traffic conversion volume and how we should think about those KPIs evolving in the year to come?

And the second question is around China. So here, strong performance that we saw in the fourth quarter. I feel like maybe the brand is quite strong around fall/winter, so scarves.

I'm sorry?

It seems like the brand is very strong around fall/winter with scarves, trench range. So winter were working quite well apparently. But how should we think about the spring/summer collection in China? Do you feel like the brand has the same traction level when it comes to the light wear option, basically?

Yes. Kate, why don't you start with the KPIs and then I can share a little bit about the seasonality and specifically in China.

Great. So yes, when we think about the KPIs or indeed what we call the retail equation that you referred to, look, first of all, traffic, it has been challenging as it has been for the whole sector. But I think what we've been particularly pleased with is conversion. So the -- as per some of the comments that you've just heard from Josh, it's certainly good brand momentum, the products we're resonating. So when people are coming into our stores, they are really enjoying what they see.

In terms of the AUR, for the year, slightly down. I think we've talked about that before, very much in line with the plan because that was all about aligning our pricing with our category authority. But I would say, as we've moved through the year, that is very much stabilized. And I think looking ahead, I don't expect to be a headwind next year. So I think those are the moving parts.

In terms of looking ahead, I think we're starting FY '27 with great momentum. And as per my closing comments a moment ago, we're feeling confident around revenue and margin growth in the year ahead.

And then -- thank you, Kate. and then on China, clearly, we're very pleased with what we're seeing there in terms of our momentum and the way the brand is resonating with a broad luxury audience in China. The customer acquisition we're seeing there this double-digit growth in Gen Z gives us great confidence for the future because we're really bringing in a whole new generation of people to discover and love Burberry. And clearly, our core categories of outerwear and scarves have been pivotal in that for the past 2 years, the Burberry scarf has been a social media sensation in China and has really driven a new generation of young customers. That was really amplified by our significantly increased investment over Lunar New Year, which had a much broader media plan, and we had much more content because we had 4 major Chinese talents headline the Lunar New Year campaign.

In terms of the strength that we have in the winter season and particularly around the gifting season around Christmas in the West and Lunar New Year in the East. One thing I think people don't fully appreciate about Burberry is that we're a year-round business. Actually, 1 of our peaks for rainwear is in the spring. March is an incredibly important month for trench coats and for rainwear. And it's no accident that was strategically timed our Portraits of the Icon trench campaign. And again, distorting investment in that peak time for us turned out to be a very good investment. And to call attention to our core category in the spring.

I was also reflecting earlier today how 1 of my predecessors, Rose Marie Bravo, was particularly genius in many things, but specifically, she was the 1 who was responsible for putting Kate Moss in a Burberry bikini. And I think it was 2001, 2002 timing. And all of a sudden, she had Stella Tennant in a trench coat and Kate Moss in bikini and Burberry was for all kinds of weather.

So while other companies based in outerwear may be more of a winter business, I think as you can see in this room from our summer shop to my left and from our winter runway to my right, you can see that Burberry is really for all kinds of weather.

Grace Smalley from Morgan Stanley. My first question would be on marketing. I think 1 of the concerns we hear from investors is that some of the initial progress you've made on top line has really been driven by an increased marketing spend and whether that's sustainable as you move forward and you want to move towards your margin targets. I guess how do you think about that as a concern? And is it fair to think that outside of marketing, there's also a number of initiatives to drive incremental top line gains going forward, whether it be on product or whether it be on your store initiatives?

And then my second question would just be on the store fleet. You outlined sort of a number of the kind of store productivity initiatives. But now that you're further in the Burberry Forward plan, how are you thinking about the health of the store fleet, the number of stores? I know you have closed some stores this year and also the location of the stores as well.

Okay. So clearly, the marketing has been a signature factor of our turnaround and incredibly important to get a strong message out there that is very consistent. And Jonathan Kiman, who's our Chief Marketing Officer, always reminds me about repetition, repetition, repetition. And because we know that there are many people that we need to get this message out to. So we have been investing a high single-digit percent of sales in marketing, and we will continue to do so. And it's -- having a drumbeat, like I said, a big global efforts and then piercing that drumbeat with localized content and also disruption like the Hunza G capsule. So it's consistency and with a little bit of disruption to make people take another look at Burberry for all kinds of weather.

And so far, that investment is paying off. We're seeing that. When we get the customers to the store, as Kate said, we're having an excellent conversion, which is really driven by the improvements that we've made in product.

So like I said, we're just getting started, and we have a lot of growth levers ahead. Those come from a product first. And of course, our core categories still have room for growth. People said a year ago, "Oh, scarves, that's a mature business for mature customers." We reignited the category, and with the scarf bars that are driving productivity with the amount of attention on that category. And now that's a category that many of our peers want a piece of, but it had been a category that hadn't been such a focus in the past.

Beyond our core, as I mentioned, we're starting to see the momentum extend into other categories. So we've seen growth in the overall accessory categories. And now we're seeing green shoots in leather goods, which is really encouraging. I don't want to say too much about it because I know we've kind of overpromised and under delivered on this in the past. And -- but we're really building. We're really about building sustainable growth across the wardrobing categories across the accessory categories. And we're encouraged by the signs that we have from our customers.

In terms of the store fleet, as we've discussed, we have great locations around the world. And so they're certainly prominent. Where we have room to improve is on the productivity and the profitability. And so every year, we have a closure of some stores and we opened some stores. I think this year was 12. Net 12. So obviously, we are exiting stores, which either are in locations that are no longer appropriate or have profitability challenges. And in some cases, when it's a center location, we just want to exit, we'll exit. But in other cases, we will find a more profitable alternative to showcase the product.

A great example is in Brussels. We had an aging oversized store that was -- had a very long lease. We were very happy to leave our former location. We've opened in a smaller location, a more updated concept. You walk right in, you see a beautiful scarf bar, and it really reflects our latest thinking. And it's doing quite well and will contribute positively.

If we can go to Thomas. And then [indiscernible].

Thomas Chauvet from Citi. Two questions, please. The first 1 on your gross margin, significant expansion to 500 bps to 68% for the year. A lot of that had to do with the prior year pressures and the inventory exit. We know that. How do you see gross margin expansion from here in terms of the pace in the coming years and the drivers, is it all about improving full prices further? Or do you see other levers to return to 70% GM from pricing to perhaps rethinking the product manufacturing, supply chain vendor management? Any 70% cap, by the way, as you or your predecessor Kate used to say in the past?

And secondly, on your capital allocation framework. I think historically, you had an interesting slide to give the priorities. It feels that priorities is organic investment for the year ahead. But can you talk a little bit about other capital allocation priorities between acquisition of suppliers and vertical integration and of course, dividends and share buyback, what do you need to see to reinstate the dividend and to return to the traditional GBP 150 million per annum buyback you used to do?

Thank you. So look, if we start with the gross margin, you're right. We've talked a lot over the last few quarters around expecting quite a significant improvement this year, and that was all down to the decisive action that we took on inventory back in FY '25. So I think we've guided to 300, 350 improvement this year. We have obviously done significantly better than that. And really, that is driven by, as I mentioned, it's really higher sell-throughs, lower markdown. And that really is down to the product that is really resonating with our customers.

So I think we're certainly ahead of where we hoped we'd be at nearly 68%. I think what you should expect from here, we've given this target of over the medium term. Let's not forget, we were only there just a few years ago. So I think it is absolutely achievable. And I would now just assume a kind of gradual improvement back to that 70% really.

And as to whether we can go beyond, I mean, I think we've put out there the GBP 3 billion, 70% high-teens operating margin. We're very focused on getting there. But I think certainly, GBP 3 billion and beyond is what I would say.

I think the second point on your capital allocation, look, we've not moved away from that framework at all. We are really pleased with the free cash flow that we've seen this year. You can see some significant deleverage. But you're right, you said it in your comments, we are -- strategy is working. We've got great momentum. And I think the most important thing in the short term is to have that firepower to really invest in Burberry Forward and to keep driving that momentum.

That said, our intention is absolutely to reinstate the dividend. We know that's important to our shareholders. And we will -- as soon as we're ready, we will message that's clearly a decision for the Board.

And then as to longer-term initiatives, we'll communicate those as and when we're ready. But I think short term, good free cash flow, you'll continue to see that investing in the business and dividend as and when we are ready.

On the gross margin piece, it's really about the quality of sales, even the exit of inventory and then coupled with the lower markdowns, higher full price sell-through speaks to the product acceptance speaks to that this is a better quality business than it was a year ago.

Thank you. Harrison [indiscernible].

Harrison from Berenberg. Two questions, if I may. So firstly, impact of Saks. Can you help me size that either the top line or anything on the sizing of debt. Just had a few questions from investors on that?

And then secondly, on discounting. So you're talking about the quality of full price sell through. Could you discuss it by regions, especially China and the U.S. are these regional bright spots for that?

And then maybe a little bit on outlets like are you going to sustain the exposure at 13% of stores, give or take?

So with Saks, Saks was and remains a very important wholesale partner for us. We've worked with Saks Fifth Avenue and Bergdorf Goodman and Neiman Marcus for many years. We were able to settle that situation with them as a critical vendor, and we have moved forward with them and in fact, are reinforcing our presence in their stores. We have a strong relationship with the whole team there, and they are among the wholesale partners who are very enthusiastic about the next phase of Burberry Forward.

Beyond that, in terms of the full price sell through, clearly, you can see the momentum that we're having in Americas in China. But it was really globally that on a sell-through basis that we had a much better quarter in a much better year this year versus the prior year. There has been a really broad product acceptance on a global basis.

I would also highlight Korea. Well, Korea will never be as big as the Americas or China. We've had 2 consecutive quarters with 13% growth. And what we understand from our team there, that there is a small impact of Chinese tourism, but it is mostly our local customers, and it's mostly that we're taking market share in what is a mature but dynamic market. And so that is very encouraging.

In terms of our outlet business, you are right that our outlet network is about 13% of our store count. Broadly speaking, we are okay with that. I think you'd also notice that the quality of sales is changing in outlet to because we've exited the most difficult merchandise from our full price channel a year ago. So when we are now in our normal cadence, we don't have to discount as much either in the full price channel or in the outlet channel. And so that's positive again and the sign of just a better quality business all around.

Great. Can we go with Chiara please and then Chris.

It's Chiara Battistini from JPMorgan. The first question I had is on OpEx and how to think about spending as we go into fiscal '27. We're coming also towards the end of the cost-saving plan and you've been delivering very well on that. But thinking about the shape of the OpEx and the balance between the savings and investments also to continue to support the brand. I was wondering if you could help us thinking about that bridge?

And then the second question may be shorter term on how the Q2 started calendar Q2, given the overall environment that remains quite volatile and to explore that seem to be remaining under pressure. So any color on current trading would be great.

Chiara, yes, so I mean, you've seen, obviously, this year, we're really pleased that we've delivered our cost savings plan as anticipated. And that's been really helpful because it has enabled us to certainly invest in the consumer-facing areas. As Josh alluded to, we have in terms of actual pounds millions, we have spent more on marketing year-on-year. And of course, as ever, helped us mitigate the usual additional costs such as inflation.

Moving forward, we remain incredibly focused on OpEx. Clearly, we have a high fixed base but where we can, very focused on OpEx. We've got another GBP 20 million of savings to come through. And I think our ambition will be to continue to mitigate inflation where possible and any other one-off costs that may come in and very much protecting that consumer-facing spend. And as Josh talked about, we are committed to the high single-digit percentage spend on marketing.

Look, in terms of current trading, I think I'll probably do my usual can't comment on current trading. But the only thing I would say is we've been really pleased with how Mother's Day has gone in the U.S. Obviously, that's a really important period. And likewise, I would say that Golden Week is also -- we're really pleased with our performance there as well.

Great. And then Chris.

It's Chris Huang from -- Hello. Can you hear me?

Yes.

Yes, perfect. It's Chris Huang from UBS. I will stick to 2 as well. The first one, could you please also just come back to the performance between the outlet and full price channels. You have mentioned improving quality of sales growth, but is it fair to say that maybe for price is growing mid-single digit and outlets, is it in the positive or negative territory? That's my first one.

Secondly, on like-for-like, you did plus 2 in FY '26. Just trying to better understand the drivers behind that. Obviously, you mentioned that AUR was a bit of a headwind in this year. But could you provide some quantitative color on that number in terms of how much volumes were up? How much was price? How much was mix?

Kate, do you want to take the second part? And then I'll to back on that outlook.

Okay. So I mean I think in terms of AUR small down. I think we've talked kind of low single digit. That's for the year. And as per my earlier comments, though, as we move through the year, certainly, it's stabilized, and I wouldn't see that being a headwind. I think we've given kind of good detail regionally in terms of the comp. And within that, I think fair to say that traffic has been reasonably challenging and really no different from what I said before. It's really a conversion that has been a big driver here. So conversion really strong traffic a little bit more challenging and AUR as we move through the year, stabilizing. So as I say, it's back to resonating and it's now about getting more customers into store.

So on outlet and full price, as you know, we don't report separately, and we usually don't give separate color on the 2. But what I will say is that the traffic in the outlet villages, particularly in EMEA has been more challenging. And so I think that is universal between us and our peers.

Great. Do we have anyone else? Piral and then Maria, and I think we will have to close it.

Piral Dadhania from RBC. Can I ask 2 qualitative questions, please? The first 1 is on the customer profile. Joshua, when you took over last year, I think you spent a lot of time thinking about the 5 segments of the customer. Could you -- and I don't think you've mentioned it in your prepared remarks. So could you give us an update on how your progress on recruiting those key customers that you were maybe lacking in the past is going, please?

And then the second question was on ready-to-wear yes. So strong momentum in leather goods in carves and obviously, outerwear. Could you maybe give us an update on how the ready-to-wear business is going and whether that was positive in fiscal '26?

Yes, absolutely. So in terms of the customer segments, the customer -- that customer segmentation continues to be at the heart of the work that Paul Price, our Chief Merchant, is doing with his teams and with our design teams. And that framework has been really a quiet catalyst in helping us in our turnaround. The opinionated customer, we have a handful of them. and they are important to our business. And they are even more inspired by the recent shows that Daniel has done. And so I had the great pleasure of hosting a dinner after our fashion show at the Tower of London. And it was wonderful to see our customers' engagement with the pinnacle of our brand. And those customers are spending more and leaning further in.

Where we were lacking were in some of these other segments. So you have the investor customer who is a more classic customer who likes very fine things and the conservative customer who has a very similar aesthetic but doesn't necessarily spend as much or as frequently. You will see in our stores this autumn/winter, you'll see a much expanded assortment of cashmere that -- and the reason why we're expanding it is because what we had in store this year literally sold out. So a beautiful cashmere knitwear, beautiful cashmere coats, our Kensington trench coat comes in cashmere. And that is priced around GBP 3,200. And that offers great value for money in a luxury context because our competitors are offering cashmere coats, GBP 4,000, GBP 5,000, GBP 6,000, GBP 7,000. And when we sold out on those cash mirror coats fairly early in the season, we started thinking about how can we amplify this category because there are a few players that are very focused on cashmere. But don't necessarily do it with the kind of fun spirit that we have and the Britishness that we have, and they don't necessarily have the same price value quality relationship.

And so that's an area where we actually ran out of product this year. And because we started to see the investor customer come back, we started to see the conservative customer come back, and we didn't have enough inventory to service them. So that's 1 of the reasons why I'm optimistic about next year because I know where we ran out of product this year.

And then if we look at the headiness customer and the aspiring customer. I think what we've been doing with Gen Z is really important there, how we've been bringing a new generation into the fold. And what is so interesting to me is often people think, "Oh, Gen Z, you're going to have to do something very different than your core." And what they are responding to is our core, is that Burberry scarf or the Burberry polo as the most important recruitment items in the business. So heroing them. And I said something -- and I think I've said it at most of our get togethers about how we have the most opportunity where we have the most authenticity. And we're acquiring this younger cohort of customers to a very significant extent in China, but it's happening globally now on the back of our most authentic product. And so that is giving us a great confidence.

In terms of ready-to-wear, again, a great example is knitwear. In your mind -- in my mind, at least, I always kind of think Burberry had an important knitwear presence and because it should. But we never really have capitalized on it. And with our authority in cashmere scarves and soft fabrics and shouldn't we have a powerful presence in knitwear. And so that's how we're thinking about ready-to-wear about like where are the areas where we have authority, where can we complete the look. And I wasn't going to share all of that in terms of what's coming in the next collections, but a lot of that is informed by this first year of Burberry Forward. And I'm really excited about what's coming next.

And then Maria.

Maria Meita from Bernstein. I have few questions. One is sort of a follow-up to the previous one. And regarding new customers. So once these new customers come in to buy the car for the Hunza G swimwear, how do you work with them to sort of retain them and to elevate them? Are these specific actions are working very well or something that you've seen that you'd like to sort of do more of? And are there differences across regions?

And then my second question is regarding evergreen items versus newness.

I'm sorry, I didn't hear the -- we're going what?

Evergreen carryover items versus newness. What is the level now? Are you comfortable with it? Or do you think you're sort of relying a bit too much on the evergreen items and you'd like to bring more newness into the fold?

Okay. So in terms of the customer journey, that is -- it's a great question. We have an incredible team of client advisers. And historically, they have been working in more of an ad hoc basis in terms of their approach to clienteling. But this pilot that we talked about that we launched in Q4 is marrying the magic of our client advisers and the type of people that we hire and their ability to wardrobe their customers and build relationships with their customers. But marrying that magic that they have with logic and technology. And so what we've been able to do is we've been able to go deeper into the client books and have targeted prompts for the client advisers to send out and to do that at scale. And so we're on 1 platform in the West, and we're on WeCom in the East.

And frankly, this was an investment that was planned 2 years ago. And given where we were financially, we deferred that investment, and we started the work this year. But the real tail off is going to come in fiscal '27 as we bring these client journeys to life. And we have different programs depending on where you enter the brand. So the journey for a Gen Z swimwear customer who -- where that's their first purchase is going to be different than the journey for somebody who comes in and buys a cashmere trench on day 1. And it's marrying art and science. And again, this is another reason why I am confident in the year ahead.

In terms of your question about newness and replenishment or carryover we were in a part of the cycle 2 years ago. I joined almost 2 years ago. And we were at the part of the cycle where we had introduced newness that hadn't really resonated, and so we were carrying over a lot of older products. And at this point, we have exited a lot of that older product as we have confidence in the options that are coming through in the newness. So some of the newness of the last 18 months is now being filtered into carryover and replenishment in a usual cadence. And so we're at the place where we have the right balance in our stores. And when you go into the stores, it doesn't look like, oh, that was from a different generation. And I think you're seeing that it looks more cohesive and all with 1 signature, but that is meeting clients' different needs.

Super. Well, thank you, Josh. Thank you, Kate. Thanks for the questions. That concludes our Q&A. I'll hand it back to Josh for closing remarks.

Thank you, everyone, for your questions. It's always good to get together with you at these events. I also want to take the opportunity to also acknowledge our announcement this morning that Gerry Murphy, who is seated a front-end center has decided to retire as Chair from the date of our interim results in November.

During his nearly 9-year tenure, Jerry has made many valuable contributions to Burberry. And specifically, I am appreciative of the important role that he has had in supporting me and our leadership team throughout my time as CEO. We will have plenty of time and occasions to thank Gerry for his contributions in the months ahead.

Also, we announced that Gerry will be succeeded by William Jackson, who will join Burberry as a Non-Executive Director on July 1, 2026. I am very pleased to welcome William to the Board, and I work -- I look forward to working very closely with William as all of us on the leadership team continue to drive Burberry Forward.

Most importantly, I would like to thank all of our colleagues around the world who are responsible for the progress we are making on our strategy. Our strategy is working and it's because of our incredible people around the world.

And finally, I'd like to thank -- take the opportunity to thank our investors, analysts and partners who continue to support us on this journey. Thank you.

Good morning. I'm Kate Ferry, CFO of Burberry. And with me today is Josh Schulman, our CEO; and Lauren Wu Leng, Head of Investor Relations. There are slides to accompany this call on our corporate website, and a transcript will also be available later today.

In terms of running order, I'll go through our performance in the third quarter, and then Josh and I will be happy to take your questions. Since our last update just a couple of months ago, we have continued to see positive signals across the business, which provide further proof points that the Burberry Forward strategy is working. For the third quarter, comparable retail sales grew 3% versus last year, a sequential improvement on Q2.

As planned, we delivered a higher quality of sales across all channels and regions as we return to a shorter, shallower and more discrete markdown period versus last year. We saw continued brand momentum with the outerwear and festive campaigns, and these were further amplified with activations around the world. We delivered a double-digit improvement in Gen Z customer growth in Greater China and Asia Pacific with growth in younger consumers across all regions.

Our hero categories continue to outperform with scarfs and outerwear both up double digits. And this momentum is now extending into handbags and ready-to-wear. We've also seen a significant improvement in sell-through driven by a strong customer response to our spring '26 collection. In stores, we improved retail productivity and continued the rollout of our scarf bars, reaching 190 to date with 200 on track by year-end.

Moving on to the quarter's retail performance on Slide 3. Comparable store sales grew 3% in the quarter. The impact from space was flat, leading to 3% retail sales growth at constant exchange rates. Currency was a 2% headwind in the quarter with retail revenue landing at GBP 665 million, up 1% at reported exchange rates. We saw full price sales accelerate this quarter, offsetting reduced markdown activity as we return to a private sale format in stores and online.

The shorter, shallower and more discrete markdown period resulted in a margin improvement overall as anticipated. All 4 regions delivered flat or positive comparable sales for the second consecutive quarter. Traffic continues to be challenging, but conversion and AUR were up in the quarter, reflecting a strong consumer response to our refreshed ranges.

Asia Pacific led with the greatest sequential improvement, up 5% from flat in Q2, driven by a strong performance in South Korea. South Korea returned to growth at 13%, supported by both local customers and increased tourist spend, particularly from Chinese visitors. Japan grew 2%, in line with Q2, though reduced tourist activity continued to be a headwind.

Greater China grew 6%, improving from 3% in Q2, fueled by local spend. Similar to Q2, Chinese customers outside the region slowed, but local demand offset the decline with the overall cluster turning positive. EMEA was flat year-on-year, continuing to be impacted by reduced tourist activity. The Middle East, while a smaller part of the business, showed notable strength both locally and across the region.

Americas grew 2%, supported by local spend during the festive period and continued growth in new customers. This was slightly below Q2 due to the higher penetration of markdown activity in Q3 last year. We began Q3 with the latest installment of its always Burberry weather postcards from London and followed this with our festive campaign, which drove strong engagement across our channels.

Average Instagram reach was up double digits, complemented by a strong performance across digital and social platforms in China. Branded search, i.e., customers looking for Burberry on Google, was up double digits globally. This year, we're excited to celebrate our 170th anniversary with a series of innovative campaigns and activations, starting with the launch of our Gabardine capsule earlier this month.

In terms of product, our customers are responding to our timeless British luxury expression and synchronicity between our runway looks and commercial core, enabling us to reach a broad luxury audience. Building on our strength in outerwear, our stronger assortment of knitwear, trousers, skirts and dresses has given customers more ways to wear Burberry head to toe, driving momentum in ready-to-wear.

We strengthened our foundation in accessories, sequentially improving quarter-on-quarter led by scarfs and bags. Half of scarf purchases were personalized, highlighting our customers' desire for unique pieces anchored in Burberry's brand codes this festive season. In distribution, we continued our focus on enhancing the in-store experience through richer displays and cross-category merchandising.

We also delivered a series of high-impact festive activations to engage customers globally from the spectacular Bloomingdale's takeover in New York City to an ice skating rink in Beijing and finally, back home in London with a retail pop-up at the iconic Claridges hotel. In addition, our scarf bars continue to outperform and are helping to drive store productivity.

Building on this momentum, we're launching more category destinations in the year ahead, including for trench coats and polo shirts. Turning now to the outlook. As we move into the final quarter of the year, the impact of our initiatives continue to build, giving us increased confidence in the direction of the business. We expect adjusted operating profit to be in line with consensus for full year '26.

We are confident that we can build on the progress we've made in quality of earnings, continuing to improve performance and driving sustainable long-term value. And with that, we will now be happy to take your questions.

[Operator Instructions] Our first question is from Antoine Belge from BNP Paribas.

It's Antoine Belge, BNP Paribas. So 2 questions, if I may. The first one is about the very good performance of Greater China. So could you maybe comment a bit into more detail about the Mainland and the Hong Kong, et cetera? And so what is -- why is it accelerating? Which products are resonating a bit better with that particular customer group?

And my second question is about the retail productivity. I don't know if you could mention figures or at least some flavor around how it's evolving, especially compared to the more recent period.

Perhaps I'll hand over to Josh to chat through some of the products and so on, that we're seeing really resonating in China. I mean I think just on the productivity point, we're not giving any specific targets. But clearly, you can see sales up 3%, flat space, retail productivity is certainly improving, and that really is being driven by all of the initiatives that we highlighted today, whether that's product resonating well, brand.

And obviously, we highlight specifically initiatives like scarf bar and some of the things that you've been seeing happening within the store, but we're not putting a specific number on it. Josh, do you want to tackle the China and...

Sure. So overall, we're very pleased with the Greater China performance, which accelerated in the quarter. And it was really throughout Greater China, but led by the Mainland and the most important flagship cities were really in the lead. So strong growth and exactly where we would want it to be. And it reflects the strong engagement of Gen Z in that market and which is leading us globally. The Gen Z are up double digit.

And it was really led on the retail equation in terms of conversion and AUR. And I can just say having visited the region recently and comparing store after store to my visits last year at the same time, you can just see the difference in the offer, in the physical store anchored by a scarf bar, in the more robust visual merchandising, highlighting a product range that was really designed for broad universal luxury appeal.

So you can see the diversity of customers in the stores attracted to a wider array of products. And so we were selling we were led by outerwear and scarves. But now we're seeing the product momentum extend. And in China, the ready-to-wear category led by knitwear, frankly, anything cashmere that we had in the better and best parts of our pyramid, we're selling.

So cashmere coats, cashmere knitwear with the EKD, the Equestrian Night design logo, all of those were leading and starting to see really positive sell-throughs on our flagship vintage check handbags, which we had a collection that was trimmed in Ruby Red, which really resonated with our Chinese customers.

And so all the work that the team has been doing there in terms of localizing the marketing with more brand ambassadors. This year, we have 4 brand ambassadors versus 1 last year in terms of disruptive activations like taking over the iconic ice skating rink at Wangfujing in Beijing. All of those are really working, frankly, to drive engagement of our Chinese customers.

If I can sneak in just a follow-up. So in China, has there been any store network changes, other openings or closure in the quarter?

Nothing significant, just the normal pace, but nothing significant to announce.

Our next question is from Grace Moley with Morgan Stanley. Sorry, Grace, we can't hear you. If you could just check -- so we're going to just move on to the next question for the time being. Next question is from Thomas Chauvet from Citigroup.

I have 2 questions, please. The first one on Korea, you indicated it was a bright spot. Obviously, it's an important market for you. I think the second largest after China in Asia. What is Burberry specific versus the broader market? And what are the successful actions you've had there even in China that you can incorporate into other Asian markets, which have been a bit softer in the period, whether Japan or Southeast Asia? That's my first question.

And secondly, on wholesale, you've turned your wholesale business in just over 12 months with renewed trust from your key partners and a solid revenue guidance for the second half. Can you update us on 2 regions? One, Europe, is the closure of smaller European accounts largely over? And with regards to the U.S. department stores, any material exposure to the Saks Global situation? And more generally, how do you assess the health of your top 4, 5 U.S. partner at the time. They seem to be increasingly excited to order merchandise from Burberry, but some of them, as we know, are in a relatively fragile financial situation.

Yes. Thomas, I will take both of your questions, which are both really good questions. So starting in Korea, we couldn't be more delighted with the traction there. Korea is an extremely important market for Burberry. We were one of the first to make Korea a real focus for the local customer there. 20 years ago, Korea was thought of as more of a duty-free market. And I think several of my predecessors a long time ago, really focused on that region for the locals. And what we see there today is that the overall market is improving. But based on our brand position in Korea, we are outperforming a stronger market there. And what we hear is that we are among the top players in the market. And we've really worked in enhancing that relationship between our merchants in the center here in London and in our local markets.

And I think the work that's been done in Korea is a great example of that in terms of how to phase their outerwear cycle and to be seasonally appropriate for the different times of year. And so we're really seeing the strength led by outerwear and scarves there. But like other parts in the world -- parts of the world, we're now also seeing that strength extend to other products as well.

Of course, in terms of Korea tourism this quarter, we benefited from double-digit growth, but that was both on the tourist side and on the locals, which are the vast majority of the customers there. You mentioned the other areas in Asia, you'll remember earlier this year, I guess it's last year at this point, we reorganized our Asia regions around a Greater China region and an Asia Pacific region. So now we have a President who sits in Seoul, but she has a team in Seoul, in Tokyo and in Southeast Asia and Oceania.

And so you're seeing a lot of the best practices from Korea starting to be implemented across the region. And it's really a terrific team with a mix of local expertise and central guidance. So we have great people in Singapore and in Japan as well. Moving to your question about wholesale. So I think it's always important that we frame wholesale as a relatively small part of our business. It's about 12% of the business.

And for us, particularly a brand that is in a transformation, I find being present with the top-of-line wholesale partners in the world to be really important because that's a place where customers can discover the brand. And frankly, it's a place where we benchmark ourselves against the competition too. And -- and so obviously, it's a dynamic time in the channel. So Saks Global is a long-term partner of ours.

I'm not going to comment specifically on our exposure as part of their restructuring. But I would say it is early days with the new leadership team, but we are confident -- we're confident in the leadership. We're confident in Geoffroy and his team that they will be able to restore Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman to their rightful place in the luxury landscape.

I would also highlight that Saks Global is a very important customer of ours, but we also have other important customers in the market. And during this quarter, we were really proud to have our takeover of Bloomingdale's 59th Street in New York City with the spectacular activation. I don't know if you made it out to New York to see it, Thomas. But if not, you really missed something because we wrapped the facade in 126,000 twinkling lights in the shape of a Burberry scarf, and we had pop-up shots on nearly every floor in the building, and it was truly spectacular.

And that's the types of activations and the types of reach that you can achieve when you partner with the best wholesale customers in the world. Your last point about Europe, I think that is an ongoing effort, and that's dynamic because the small multi-brands evolve, and we want to be alongside our luxury peers. And if those accounts no longer have the luxury peers, then we tend to exit them.

Our next question is from Chiara Battistini from JPMorgan.

I have a couple of questions, please. The first one on the like-for-like, the 3%, if you could provide us with any color in terms of the split between pricing, volume and possibly also maybe the mix effect from shifting from discount to full price sales?

And the second question, more on the ready-to-wear and on the handbags and accessories in terms of how to think about the evolution of the product assortment from here in terms of newness versus more activation? Any color you can give us on the upcoming initiatives on this category specifically, please?

Chiara, perhaps I'll take the first one on the retail equation, and then I'll hand over to Josh. room-to-wear and bags. So yes, the way to look at the 3% Chiara is that traffic, much as you're hearing from others, is still quite challenging everywhere, but we are really, really encouraged by what we're seeing in terms of conversion. So strong conversion everywhere, customers coming in, certainly liking what they're seeing.

On pricing, so Q3, you're probably not surprised to hear that the AUR was up because, of course, we reverted to the private sale this year versus the very public sale last year. And I think on pricing more broadly, we've talked to you a lot about our pricing strategy with the good, better, best tiering. And I think I would say that we are seeing that our pricing strategy is really, really working.

So we're seeing good traction, both at the top end -- we've talked before as scarfs, for example, as a good category to showcase this where we're doing extremely well in some of these high-end cashmere capes as well as the kind of silk scarfs at the lower end. Likewise, in outerwear, obviously, heritage is a core category. But within that, for example, the Kensington coat and cashmere selling really well. So I think we're very pleased with how pricing is playing out. Josh, do you want to take on?

On the product piece. Yes, I think you actually touched on it somewhat in your answer. As we look at the quarter, the products are really having a broad universal appeal. And we are very pleased with the traction that we're starting to get beyond the core outerwear and scarf categories. So in handbags, for instance, we have the good, better, best strategy, and we were really seeing traction at all levels.

So we talked last time about the introduction of the Horseshoe bag, which is an opening price bag. Also, we've had our core vintage check line, which up until this season, it had been a long time since we had provided newness there. And we did the core shapes with a Ruby trim and introduced a few new small shapes. -- and that had a very strong response globally. And then in the best category, our [indiscernible] bags, our beautiful suede or leather cotswolds totes with the iconic hardware, those have also been resonating with customers.

Kate touched on our traction in cashmere Kensington trench coats. And now we're seeing that cashmere authority that we have in trench coats and scarves also translate into knitwear. -- which was a big part of our campaign. You saw in the Night -- before festive campaign, you saw many people of different generations and different walks of life wearing a cashmere Burberry sweater with bold branding of the Equestrian night design and the Burberry wordmark, and that was the best seller across regions.

Our next question is from Carole Madjo from Barclays.

Just a quick question from me, please. Can you share any color on the exit rate and on current trading? Are you seeing the sort of Q4 being broadly in line with Q3 or anything to call out here?

Carole, I think that we don't typically comment on how we've traded month by month in the quarter, but I think fair to say we were really pleased with how we ended the quarter. And again, look, on Q4, we've been really pleased with Q3. I think the shape of Q4, as you know, is going to be very different because, of course, Lunar New Year is a couple of weeks later than it was this time last year.

So I'm not going to comment on current trading. But kind of even if I could, it really is too soon to make a call on it. But as I say, we're really pleased with how Q3 played out. And I think we've got a fantastic Lunar New Year capsule. We've got some really good campaigns around it as well. And yes, we look forward to updating you in May.

Our next question is from Grace Smalley with Morgan Stanley.

Sorry, I was disconnected. I'll just give it to one question as I know we're coming up on time. I just wanted to ask a follow-up on China, please. Thank you for the color earlier in the call. Based on what you said, it sounds like as if you attribute the improvement both within Greater China, but also the Chinese consumer cluster largely to your company-specific initiatives. Is that fair?

Or what are you also seeing from the Chinese consumer more broadly in terms of macro and market stabilization? And anything you can share in terms of how different price points are doing within China and whether the aspirational consumer or there's any trading down from higher price points to more aspirational price points?

Grace, I mean I think just to clarify on the cluster because I know people are always interested in that. I mean, we did actually -- the cluster did turn positive. You'll probably remember it was flat last quarter. The Chinese cluster turned positive. So we are seeing sequential improvement quarter-on-quarter there. You'd expect it was slightly behind the region because, of course, you are seeing this slowdown in outbound tourist spend. But as we said before, we're really encouraged by local spend there. In terms of versus the competition?

I think traffic remains challenging, but our conversion was really spectacular in China. And I think that speaks to the -- in China and more broadly, conversion was strong. And I think that speaks to the product offer and that the customers are finding more about more of what they love about Burberry in the stores, and it is easier for our client advisers to fully wardrobe their customers.

And our next question is from Piral Dadhania from RBC.

So I just have one. I guess as we approach the end of the autumn/winter season, this is the first in which you guys have had full control over the way in which you've operated as well as the product range. Could you perhaps, Joshua give us some insights into the learnings that you've had? I think you touched on certain product categories like cashmere working better than perhaps you were expecting.

How are you planning and setting the business up for autumn/winter '26? And are you planning to be more aggressive in terms of the open to buy and the purchase order commitments as you gain confidence in the strategy delivering to plan?

That is a terrific question. because you rightly noted that this was the first festive season that was fully impacted by the Burberry Forward strategy. Last year, we were pulling together the campaign with a product mix that hadn't necessarily been conceived with the Burberry Forward strategy.

So the biggest learning is that the strategy is working, that timeless British luxury is the right brand expression, that aligning our pricing authority -- aligning our pricing to category authority is working for us, that we have broad universal appeal and need to have good, better, best in each of our categories and that we also need to lean into our strengths of leading with outerwear and using scarves as a differentiator, but then fully wardrobing the customer.

So as a merchant, we're always looking at what we can do better and what we didn't get right. And so one of my favorite meetings of the year is always our fest of hindsight. And we try to do that as quickly as possible after the first of the year to get together, well, it's all fresh in our minds. And one of the reflections is we were low on stock in some key classifications. So Kate mentioned Kensington cashmere trenches. -- hard to find in our stores today because we did not anticipate the demand.

And so generally, you want to keep stock in those in January and February, and we're very broken in sizes. A category like knitwear, it's not something we're famous for. We heroed it in our campaigns, but we haven't invested in the cashmere knitwear in the way that we might have knowing how successful it would be. And of course, now having this year under our belt, you never want to always look backward, you always want to look forward about what they're going to be wearing next year.

We talk about our triangle of design, merchandising and product development. And they're hard at work now taking these learnings and incorporating them into our plans. And our merchant teams have been traveling around the world, and our design team is upstairs working on the fashion show. So lots of work here and lots of learnings to build on the momentum from this quarter.

Our next question is from Zuzanna Pusz from UBS.

I just had one. Sorry, maybe it's a little tricky one because I know it's a revenue call. But I mean, hearing everything and you clearly seem to be enjoying a very strong momentum, especially on the full price front. I'm just wondering because your gross margin outlook for the year seems very conservative. It implies that basically the H2 gross margin would be much lower than H1.

So I'm just -- I guess my question is, has the -- is there anything that has changed in the business structurally because if I look back, let's say, pre-COVID when life was a little bit more normal, I believe that your H2 gross margin was usually actually a little bit higher than H1 or at least at par with H1. So yes, I guess, especially having such a strong Q3 early in the pocket, I'm just wondering if you could tell us what exactly is behind your thinking on being so conservative on the gross margin for H2?

Yes. Zuzanna, I'll take that one. I mean I think looking across the piece and what I take from today, as we've said, clearly, really pleased with our revenue performance. On the margin, it is definitely playing out as good as we could have hoped. So certainly, we've talked a lot about margin improvement. We really are seeing that coming through as planned.

You're absolutely right that in the past, yes, typically, H2 would have been higher than H1. I'm sure in time, we will return to that more normalized phasing. But as I talked about a lot back in November, the shape this year is still going to be a lower margin in the second half, albeit it will be -- you're going to see this significant improvement year-on-year, and we're feeling increasingly confident that we will deliver the margin uplift, at least as good as guided for the full year.

So I think, look, wrapping all that up into our outlook, as I say, pleased with the top line margin improvement coming through as planned. We are, however, given the momentum that we're seeing in the business, we're investing more year-on-year. And you've seen that in our marketing campaigns and therefore, reiterating consensus today. But what I would say and just to reiterate some of Josh's comments, all the signals are certainly looking very positive for our longer-term success.

But sorry, just to clarify, but what exactly? Is it tariffs? Or what is it exactly that sort of is impacting H2 gross margin so much?

Well, you remember, we had -- H1 was more around the kind of unwind of -- we did some significant provisioning in the first half in the prior year. And then, of course, this time last year, I mean we're absolutely comping against that quarter where we were exiting really problematic stock -- so we had the kind of one-off very public markdown, which we're not repeating again.

This year, we have reverted to a much more normalized sale period, private sales shorter, shallower, more discrete, and therefore, you are going to see that coming through in the margin. So very simply, it's exactly the same as what we took you through back in November.

So this now concludes our Q&A session for today. I will hand back over to Kate Ferry for any closing remarks.

Thank you. Well, we'd like to thank you all for joining us this morning, and we look forward to updating you again in May on our progress.

Good morning. We actually have some seats here in the front row. This is like the first day at school. No one wants to be -- it's not like a fashion show because at the fashion show, they really want to be seated in the front row. It's all about your seat.

In any case, good morning, and welcome to our interim results and our update on the Burberry Forward strategy. I'm Josh Schulman, CEO of Burberry. And with me is Kate Ferry, our Chief Financial Officer. One year into Burberry Forward, my belief in this extraordinary British luxury house is stronger than ever. Since we met last November, we have moved from stabilizing the business to returning to growth. I am encouraged by the signals I'm seeing throughout the business, which provide initial proof points that our Burberry Forward strategy is working.

With our timeless British luxury brand expression and an improved product offer, our brand has become more desirable. We're attracting new customers to the brand while welcoming back existing customers, resulting in sequential improvement in customer growth. And these customers are responding strongly to our autumn and winter collections with a significant increase in sell-through rate compared to last year. We're accelerating our momentum in our iconic categories, outerwear and scarves, and now this growth is extending into additional categories.

In Q2, we returned our retail business to comp sales growth for the first time in 2 years. And now our most important wholesale partners are seeing the momentum as well. We recently completed our Summer 2026 wholesale market, and the reaction has been very positive with a significant increase in orders from key opinion leading partners in the U.S. and Europe, an incredible vote of confidence in our product and Burberry's relevance.

While I am pleased with what we've achieved in our first year of Burberry Forward, these are just the first steps to reigniting desire. There is a lot more to do, and I am looking forward to building on these foundations in the year ahead.

I will now turn it over to Kate to take you through our first half financial results, and I will then update you on our strategy, our progress and our priorities as we look to year 2 of Burberry Forward.

Thank you, Josh, and good morning, everyone. For the first half, comparable retail sales were flat with sequential improvement between quarters. In the second quarter, we delivered growth of 2%, our first positive comp growth in 2 years. Total revenue was GBP 1.03 billion in the first half with adjusted operating profit of GBP 19 million. Free cash outflow was GBP 50 million, an improvement from this time last year and in line with our expectations for the half.

When we launched Burberry Forward a year ago, we talked about actions to drive sustainable performance. We've returned to adjusted operating profit in the first half. Our gross margin is recovering, up 410 basis points at constant exchange rates versus last year to 67.9%, driven mainly by a healthier inventory position. We continue to bring scarcity back to our inventory model. We have tightly managed buys throughout the half with net inventory down 24% versus last year. Following the expanded restructuring program announced in May, we're on track to deliver GBP 80 million annualized savings by the end of the year. And finally, we continue to invest our capital where we know we can get the highest returns with continued focus on cash generation.

I'll now take you through a more detailed review of performance, starting with revenue by channel. I'll refer to changes at constant exchange rates. Retail revenue declined by 1% during the half. Space reduced by 1%, while comparable retail sales remained flat year-on-year. Wholesale revenue decreased by 11%, slightly better than our guidance of a mid-teens decline, reflecting phasing and some uplift in in-season orders from our key strategic partners following improved sellout of Autumn '25.

Licensing revenue was down 8% versus last year with ongoing strength in our Fragrance and Beauty businesses, including the Goddess and Her franchises, offset by the planned destocking of older fragrance lines. As a result, total revenue for the first half declined 3% at constant exchange rates or 5% on a reported basis.

Turning now to regional performance. Comparable retail store sales were flat or positive in all 4 regions in the second quarter. Traffic at our stores remained challenging throughout the first half of the year, but we're pleased with the improvement in conversion we've seen. Greater China led with the strongest improvement as compared with Q1 with 3% comparable retail sales growth in the second quarter. This was supported by a strong Chinese Valentine's Day.

Globally, the Chinese customer group slightly lagged the regional performance with growth in locals offsetting the decline in outbound tourist flows. Asia Pacific also improved to flat in the second quarter with the first half down 2%. Japan returned to growth in the second quarter, up 2%, offsetting decline in South Korea. Americas saw 3% growth in the second quarter and the first half. The region is continuing to benefit from new customers, offsetting lower tourist spend in the United States during the summer months. EMEA remained in line with the first quarter despite reduced tourism activity, growing 1% in Q2 and the half, supported by growth in local and returning customers.

Moving on to the income statement and staying with changes at constant exchange rates. Gross margin was 67.9%, a 410 basis point improvement year-on-year. I'll give more detail on this in just a moment. Adjusted operating expenses were down 5% year-on-year at constant exchange rates following the delivery of our expanded cost savings program as well as nonrecurring store impairment headwinds in the prior year. We remain on track with our cost program, expecting to deliver GBP 80 million in annualized savings by the end of the year.

As mentioned the last time we spoke, we're investing behind our journey to reignite desire, restore growth and continue on our path of sustainable value creation. We've prioritized investment in the first half using some of these savings to invest in consumer-facing areas such as marketing. This year, we continue to invest a high single-digit percentage of sales in our brand with a focus on maximizing our return on investment. We delivered an adjusted operating profit of GBP 19 million with an operating margin of 1.9%.

Adjusting items amounted to GBP 37 million. This primarily related to restructuring costs resulting from the transformation program announced in May. The business has demonstrated resilience during this period, allowing us to progress swiftly through the program over the summer. Our full year guidance remains unchanged with restructuring costs expected to be around GBP 50 million. As a result, we've reported an operating loss of GBP 18 million for the first half. The net finance charge was GBP 30 million, of which GBP 23 million was interest charge on lease liabilities and GBP 7 million was other financing interest.

Gross margin benefited mainly from the non-repeat of inventory actions taken last year. As a reminder, these inventory actions were a combination of provisioning and discounting. This year, we have significantly less inventory, down 24% at the end of the first half. We're also seeing the benefits of our transformation program in gross margin. We experienced a free cash outflow of GBP 50 million in the first half, an improvement versus this time last year. Working capital was GBP 43 million outflow given the seasonal inventory buildup ahead of the festive period, albeit still reflecting tighter inventory management than this time last year.

Capital expenditure for the period was GBP 38 million, with investment targeted to those projects with the highest return on investment. In our retail network, we're focused on amplifying our most iconic categories. We've launched over 100 scarf bars to date and are on track to deliver 200 by the end of the year. We also opened a new showroom at our headquarters here in London, which is already driving cost efficiencies and enabling closer collaboration across our global retail teams.

Borrowings reduced by GBP 221 million following the repayment of our September 2020 bond, and we closed the period with net debt of GBP 93 million or GBP 1.1 billion, including lease liabilities. At the end of the period, net debt to adjusted EBITDA was 2.2x. We remain comfortable with our liquidity and headroom and are focused on continuing to reduce our leverage through the actions we are taking to rebuild profitability.

Turning now to the outlook for full year '26. While we remain in the early stages of our turnaround, we're encouraged by the progress made so far and expect to see the impact of our initiatives build into the second half and beyond. The macroeconomic environment remains uncertain, but our focus this year is to build on the momentum in reigniting brand desire as a key requisite to growing the top line. We will deliver continued margin improvement with a focus on simplification, productivity and cash flow.

To help you with modeling, in full year '26, we expect no changes to our guidance of retail space remaining broadly flat and annualized savings of around GBP 80 million alongside a GBP 50 million restructuring charge. Within wholesale, we expect a mid-single-digit percentage revenue decline for the full year, slightly ahead of our original expectations and returning to growth in the second half. This reflects our key wholesale partners' confidence in our new direction. We expect capital expenditure of around GBP 120 million, slightly lower than initial guidance as we've been very intentional in our investment approach, focusing on the highest return on investment projects during this year of transformation.

And finally, we expect currency to be a headwind of around GBP 50 million on revenue and around GBP 5 million on operating profit, all based on the 24th of October spot rates. Further detail can be found in the appendix of this morning's statement.

As we move into our second full year of Burberry Forward, we are confident that we can build on the progress we've made in quality of earnings, continuing to improve performance and driving sustainable long-term value.

I will now hand back to Josh.

Thank you, Kate. As we move into the second year of Burberry Forward, we are increasingly confident that we're on the right path to build brand relevance and value creation. If the strategy for the next year of Burberry Forward looks very similar to what we presented last year, this is intentional because we are now focused on accelerating and delivering on our 4 pillars with consistency, placing the summer -- I'm sorry, placing the customer at the center of everything we do, we will continue to anchor Burberry Forward in timeless British luxury as we enhance our product, marketing and customer experience to engage a broad luxury audience. This will be underpinned by an organization that is fit for purpose and executing at pace.

Starting with our brand. Our traffic and sales inflected in August as we launched our Chinese Valentine's Day campaign, followed by the Back to the city campaign focused on a more polished expression of city dressing against a backdrop of iconic London landmarks appealing to our investor customer. Next, the elegance of our Winter Runway campaign set in a quintessentially English country house attracted our opinionated customer, while the winter wardrobing campaign showcased looks that could be worn every day, appealing to all of our customer archetypes. Collectively, these campaigns have driven an improvement in brand engagement in September.

In addition to these fashion campaigns, we have continued our institutional outerwear campaigns with the latest installment of its always Burberry weather Postcards from London, which launched in October across all of our channels.

[Presentation]

Looking forward, we will continue to fully embed our timeless British luxury brand expression across all touch points, creating universally recognizable stories and imagery balancing town and country. And our marketing initiatives will celebrate our customers' cultural occasions around the world with a dose of British warmth and wit. We are looking forward to celebrating our 170th anniversary next year with a series of campaigns and activations to celebrate our iconic trench. This will include disruptive amplifications across product and marketing initiatives to drive broad global appeal.

Even global icons are leaning into our most beloved Burberry codes and showing that when we have -- where we have the most opportunity, where we have the most authenticity. When influential personalities of the world come to Burberry, they are selecting to wear our most beloved brand codes. From Olivia Dean wearing a modern interpretation of our iconic check to Tommy Paul and Jack Draper dressed in our ready-to-wear and Dua Lippo wearing a full check dress, it's clear that Burberry continues to resonate in popular culture.

Just last week, we launched our festive campaign, bringing a warm and joyous rendition of the British holidays to our customers around the world. Amid the charm and commotion of party preparations, Jennifer Saunders is joined by an all-star cast, including Naomi Campbell, Rosie Huntington Whiteley and Song Hun Min, who each share beautiful Burberry gifts with their friends and family.

[Presentation]

We are so excited about the early reaction to Twas the Night Before, our festive campaign. And we look forward to bringing other extraordinary experiences, including at Clariges, where Daniel is designing a special tree decorated with Burberry textiles alongside a pop-up shop featuring iconic Burberry gifts.

Building on our momentum in China, we are looking forward to celebrating Lunar New Year, the year of the horse. We will be increasing our investment in product and marketing with a more complete product capsule and an immersive campaign, including 4 well-known ambassadors.

Moving to product. Our customers are clearly responding to the timeless British luxury brand expression and the synchronicity between our runway looks and the commercial core that is allowing us to reach a broad luxury audience. Here, you can see how the spirit of our runway shows has been interpreted to appeal to a broad luxury audience. On the left is an extraordinary fringed runway trench from Daniel's Winter '25 show. The item retails for almost GBP 10,000, and we had preorders from our most elite clients from the moment this walked down the runway. And now Daniel, together with our merchandising team has reworked this inspiration into different silhouettes appealing to a wider audience. These looks are among our best sellers for the season, retailing at around GBP 2,500.

Building on our success with Winter '25, on the right, you can see we are taking the same approach to our Summer Runway collection. Summer '26 captured the intersection between fashion and music and was yet another uniquely British story that only Burberry could tell. You can see the beautiful leather fringe trench that walked the runway and how this inspiration has been reinterpreted into classic gabergen with leather detailing to reach a broader audience. The product mix and strategy is capturing the attention of new customers and attracting existing customers to return with sequential improvement in customer growth over the course of H1.

In particular, we're seeing new customer growth among Gen Z. I was just in China a few weeks ago and walking stores with our teams there, and they were sharing how the evolution in our collection architecture is attracting different customer profiles to the brand. These customer profiles are now fully embedded in our product development cycle. Looking forward, we will be integrating even deeper consumer insights to ensure we're meeting all of our customers' wardrobing needs.

As we enter the second year of Burberry Forward, we now have significantly greater knowledge of our customers, which is informing our product strategy. One of our priorities is to refresh our heritage rainwear assortment in the new year. We will be introducing lighter tropical gabardine and strengthening the trans seasonal appeal of our iconic trench. This will enhance customer centricity, allowing our trench to be worn in global markets year-round.

Another observation is that we are only scratching the surface with wardrobing. Building on our foundational strength in outerwear, we are now completing the look with a stronger assortment of knitwear, trousers, skirts and dresses. Across the assortment, we are developing with customers' needs in mind, including the right fabric, the right fit and the right silhouettes for men, women and children. And in accessories, we've made progress on our foundation with the amplification of scarves and resetting the base in handbags. Looking forward, we are strengthening our assortment of leather goods and shoes with a focus on both subtle and overt branding, driving commercial shapes with clear brand signifiers. Across categories, we now feel more confident to place bigger bets on selected families of newness to fuel our growth and improve our productivity.

Moving to distribution. In our stores, we are creating more warmth and desire by increasing product density, enhancing our displays and encouraging cross-category selling. We are so excited to have the majority of our scarf bars open for the festive season. These stores are already outperforming, positioning us strongly for the season ahead. Our stores now offer a richer experience, one I hope that you will all enjoy during the festive season.

Our e-commerce channel was the first to turn positive and continues to outperform. We've elevated our product storytelling, seamlessly integrating shopping journeys with rich editorial imagery and improved our styling across the offer. Building on the success of our monogramming and scarf personalization services, we're expanding our personalization offer to knitwear and capes launching in the weeks ahead, just in time for festive. Looking ahead, our focus is on driving productivity. Building on our momentum with scarf bars, we're launching more category destinations in the year ahead, including for trench coats and polo shirts.

We are also investing in clienteling capabilities, deploying new AI-enabled tools to support our client advisers and serve our customers with a warm and personal approach informed by data.

And while wholesale only accounts for around 13% of our business, it serves several very important purposes. Our opinion leading digital wholesale customers are the ideal place for customers to discover the evolution of Burberry alongside our luxury peers. As I mentioned, we've seen growth in our wholesale order book from these opinion-leading wholesale customers globally who are enthusiastic about the new direction of Burberry.

Being present on luxury platforms allows us to share our refreshed brand expression with a broader array of consumers than visit our own sites. And our omnichannel department store partners provide visibility in key locations. I am so excited to get on a plane next week and go to New York. We are literally lighting up the facade of Bloomingdale's, an iconic flagship with an enormous sparkling Burberry Check scarf. And this activation is going to -- is anchoring dedicated Burberry windows and pop-up shops throughout the store in the flagship and in key branch stores, which tell our brand story.

One of the things I am most proud of this year is reigniting our culture. I continue to be encouraged by our incredible team around the world, whether it's the product triangle of design, merchandising and marketing coming together, the regions working with the center, or our teams across stores, manufacturing sites and warehouses, delivering exceptional service for our customers. We are rekindling the creative and commercial alchemy that is unique to Burberry. We continue to uphold our commitments to social and environmental responsibility. This remains an integral part of who we are and is important to our colleagues and customers around the world.

As we move into our 170th year, we are embedding the spirit of Burberry Forward into our purpose.

[Presentation]

In the first year of Burberry Forward, we moved at pace to execute our strategy and stabilize our business. With the consistency of our timeless British luxury brand expression and an improved product offer, we now have begun to capture the attention of new customers while seeing existing customers return to the brand they love. This has resulted in comparable store sales growth for the first time in 2 years.

As we look ahead, our ambition is to deliver sustainable performance, growing the top line while expanding our profit margin and delivering strong free cash flow. As I mentioned earlier, my belief in this extraordinary British luxury brand is stronger than ever. We now have proof points that illustrate that Burberry is at its best when it forges its own path, grounded in timeless British luxury and guided by authenticity. Although it is still early days and there is a lot more to do, as we approach our 170th anniversary, we are confident that Burberry Forward is the right strategy to build brand relevance and value creation.

I will now hand it over to Lauren for Q&A, and Kate and I will take your questions. Thank you.

[Operator Instructions] I can see Carol right in front of me and then we will move over to -- and then to Luca and then I think -- as well -- Thomas...

Carol Mathis from Barclays. So two questions then. The first one, I think you mentioned that you went to China or Asia just recently. So can you come back on what you're seeing there in terms of trends, mostly on the macro environment? Any sign of stabilization that you saw on the ground on top of, I guess, you've been doing some more work to see improvement of your China performance down there? That's the first question.

Second one is about the improvement of, I guess, increasing new consumers at the brand. When you think of the chart you talk about the consumer being investor, conservative, honest, what kind of new consumers were you able to attract more if there is a way to put them in those categories?

Yes. Two great questions. So I'll start with China. It was a really wonderful trip that I took with several of my colleagues to China. And ironically, it was 1 year to the date that I took my first trip to China last year as part of Burberry. And so literally, we could see the difference in the market year-on-year, but we could also see the difference in the expression of Burberry year-on-year and hear from our field teams, the people who interact with customers every day.

In terms of the market, clearly, I do think there is a little bit of stabilization happening in the market. I do think that our inflection in China this quarter was probably driven more by our internal changes that we've made. It was really wonderful to walk through our store estate and to hear about customers literally returning, people who they had been trying to get in for the last couple of years who didn't see themselves in the product that we were offering. And now they were coming in and they were -- and their conversion was way up.

We really saw customer engagement globally improved as we went through the quarter, but particularly in China. Our earned reach was up 129% in China, which translated into new customer growth of 10% in China. And so they really led. And on a global basis, we had 18% customer growth in Gen Z with substantially higher growth in Gen Z in China. So this -- I think -- in the past, there may have been an idea that in order to attract younger customers in China, you need to be super edgy and kind of do what other brands are doing. But actually, what's working in China now is this authenticity, the timeless British luxury, the authenticity, and we're seeing that across all of our customer archetypes.

We're seeing that against younger, cooler customers. We're seeing that against more mature, sophisticated customers. And the breadth of our customers coming back to the brand in China and globally and starting to attract new customers, especially in China and in the Americas, has been one of the most gratifying things that we've seen in the last couple of months. I would also say that if you double-click on some of these metrics, you really see the quality of the business changing year-on-year in terms of the types of products we're selling, in terms of the channel mix, in terms of the breadth of customers that we're touching. So it just gives us a lot of encouragement for what lies ahead.

Luca Solca from Bernstein. I have a question on these metrics and the double clicking in particular, what you're seeing in terms of full price sell-through. One of the pushbacks we're getting is that Burberry has been discounting a lot and is discounting a lot. But I think -- and I assume that, that is connected with the phasing out of the old Burberry. And if you could give us a couple of data points on how you see that has been evolving and how that is impacting, for example, your used dependence on off-price and factory outlets and discounts?

Maybe a second question, again, going back to the point about China. I see that there's a lot that you're doing yourselves in terms of improving your predicament there. Do you have a view based on what you see from the landlords and the shopping malls where you operate, how the broader Chinese consumer nationality is doing?

Okay. So I really appreciate both questions. But on the first, let me walk you through how we're thinking about this and why I'm so encouraged about what I call the quality of sales. Normally, we don't talk about what's happening in the full-price channel versus the outlet channel. But I think it's important in this case because what we saw in the quarter was that the strength in the newness that we were delivering in our full-price channel fully offset the declines that we were having in the outlet channel, the declines in traffic that we were having in the outlet channel. And traffic has been challenging in that channel in general. But also we just have less inventory going through that channel now, and we are discounting less. And so all of that is really good for brand health and for brand heat. And you'll see that really across the business.

In our full-price stores, last year, we did an exceptional public clearance, and we did that online and in stores, and that contributed about 3 points to our comp in the festive quarter. This year, we're not doing that. We're reverting to our normal end-of-season activities, which are substantially smaller, more discrete, shallower and less. And all of these are contributing to what I call the quality of earnings.

Finally, in our wholesale channel, where we're seeing the growth is from our strategic partners. These are the luxury pure-play digital partners, they're the U.S. department stores, they are even travel retail. And they're coming back because they're seeing their sellout of Burberry in the autumn and winter collections. Their sellout is going up. They're coming to our showroom, enthusiastic about finding opportunity, and they loved what they saw from the summer collection, and they believe that their customers will likewise love it.

And so that builds a virtuous cycle with the strategic wholesale partners, and that is helping us to offset the planned decline in nonstrategic partners. So overall, I would say this print is, as you said, no drama. But under -- if you double-click under the covers, there's a lot going on that we feel very positive about and that sets us up in a good way looking forward. In terms of China, what I would say is there does feel to be a little bit of a market stabilization that is happening. But what we understand is that it's very bifurcated and very specific in terms of how a brand is performing there, probably more polarized than the rest of the world.

Erwan Rambourg from HSBC. Congrats on the consistency of messaging and execution quarter after quarter. So I'll stick to two, even though I have probably 15. So you historically talked about good, better, best coming back with maybe more palatable price points after being disconnected for a while. You just flipped positive in terms of like-for-like. Can you maybe just talk about the role of volume as part of that equation? I suspect mix is negative. I suspect pricing is limited. But yes, maybe can you talk about how that like-for-like is built up and what we can expect for the longer term?

And then you just mentioned that the disposition channel, the cleanup of obsolete inventories last year meant a 3% headwind on comp for H2. How should we feel about like-for-like for H2 in that context? And I think historically, Kate, you mentioned whether you were comfortable or not with consensus. So I'm going to be the one to ask the question. What do you think about consensus in terms of sales and EBIT? Are we at a reasonable level today?

So Kate, why don't I let you start on the headwind and the -- our view on consensus, and then I'll come back on the other piece.

Yes, sure. So yes, I think it's the usual veiled ask about current trading. So I think as usual, I'll say we're not going to comment too much on current trading at this stage. But I will say that Q3 has started well in line with the previous quarter. But Josh has already helpfully highlighted the very public markdown that we had last year. As Josh said a moment ago, that was 3 points on last year's comps. So we're not repeating those activities. So I will just highlight that again. And of course, although we're pleased with performance so far in the quarter, we're mid-November. We've got Thanksgiving, Christmas, Lunar New Year, everything to come. So it would be premature to call it. But in terms of, I guess, half 1, half 2, we would anticipate sequential improvement there.

I think on the consensus point, probably similar answer in that, look, we're broadly happy with consensus. Again, really, really important trading period ahead of us. So I think it would be premature to change guidance at this point. But I would just add that we also want to leave ourselves some firepower to invest. So depending on where we get to, you've heard it in the presentation there, we are spending more year-on-year on the kind of consumer-facing areas, specifically marketing. You heard there we are investing more in Lunar New Year, for example. So I think leaving consensus where it is today feels the right thing to do for the business.

So then I'll pick up on the retail equation and what we're seeing in terms of pricing. So we start -- our inventory is down 24%. And then when we look at our traffic in the stores, traffic remains challenging across the board and continues to remain challenging. However, our conversion is up in the low teens. And our AUR is down slightly, which was planned because we did the realignment of pricing along good, better, best and with certain key categories like scarves outperforming. So all what we would want to see at this point in the turnaround.

[indiscernible]

Not so much. We took some surgical increases in the U.S. specifically earlier this year. But pricing is relatively in line globally. And any pricing that we took on individual items was somewhat offset by the difference in mix.

Grace Smalley from Morgan Stanley. My first question would just be on marketing. You mentioned a few times there that you've increased the marketing spend. You seem very happy with the results you've seen from the marketing campaigns. So just how are you thinking about the return on marketing spend? And whether you're still tied to that marketing as high single digit as a percentage of sales or if there's actually room to further increase that and take kind of, I guess, capitalizing on this moment in time and chatting about what you're doing in terms of the brand?

Yes. Well, I mean, I think this also relates to what Kate was saying about consensus. We want to leave ourselves more firepower to invest in marketing. And my Chief Marketing Officer is in the front row over there. So he's listening very carefully to this. But we're very focused on having an ROI. And we're pleased that the initiatives we've had have resonated. We are seeing a direct impact from the marketing into the sales. So a year ago, we didn't have that luxury to even consider given where the P&L was. And now we want to be very mindful of those opportunities and not let a moment pass without investing appropriately. I don't know if you have anything to add, Kate?

No. And I think the key is, yes, for now, maintaining the high single-digit percentage of marketing, but let's see where we get to.

Very clear. And then my second one would just be on gross margin. Thank you for the helpful bridge slide. As you think about gross margin in the second half, could you just perhaps talk through those dynamics in terms of the inventory benefits, transformation benefits? And then also given the Josh's comments on the improved full price sell-through, how we should think about that impacting gross margin in the second half as well?

Yes. So I mean, recap, obviously, H1, you can see that there's that -- it's 330 basis points, which essentially is the tailwind from this time last year, all of that inventory actions. I then did flag that we had, which was probably the bit over and above what you might have expected was what we have badged as transformation benefits. And I think the message there is that although most of the transformation benefits have been in OpEx, we've been looking at cost across the business, and we have actually seen some benefit in gross margin. In terms of then what to expect for the full year, which will help you with the second half, I think guidance there remains the same. We talked about a 300 basis point tailwind for the full year, and that remains the same. You'll remember that, of course, in the second half, in terms of phasing, the trend of the last 2 years has been for H2 to be lower than H1. You'll see that again. But in terms of absolute H2 to H2 margin improvement, yes, you'll see that because you'll remember, it really was this time last year where we did a lot of nonrepeatable heavy discounting. So I think you'll certainly see that come back. So remaining the same on full year gross margin guidance.

Thomas Chauvet from Citi. Two questions. The first one on product newness and categories. If we look at your H1 performance, retail wholesale by category, I know it's a bit diluted by the wholesale performance, but womenswear was already positive in the half, which is quite an achievement. Menswear accessories down 3%, 4%. Has menswear and accessories improved sequentially in Q2? And then when you look at your upcoming spring/summer product, is there anything that excites you in terms of menswear accessories offering to drive a bit of a catch-up and bring these categories back to growth where they should be?

So we are very pleased that the initial improvement in the strength of outerwear and scarves is now spreading. And we're obviously seeing that first and most importantly, across women's, which historically has been challenging for Burberry. And yes, both men's and accessories improved sequentially during the quarter. As we moved into, I'd say, mid-August, September and that winter wardrobing came into the stores, that has really ignited those categories. Specifically on leather goods and shoes.

So again, if you double-click here, we reduced our inventory the most in leather goods. So this is really where we really took out a giant amount of inventory, and we said that we would test and learn this year. And we have been doing that, and we have some areas where we have green shoots where now we're going back and building those back. So I think we talked about the B Clip bag. Last time, that family has been strong. We've recently refreshed -- done the first stage of a refresh of our iconic vintage check. We introduced a vanity case, which has been very strong. We currently have a novelty color in Ruby, which is performing well. And we -- and this is all in advance of a bigger relaunch of vintage check in the coming seasons.

And so we've been very deliberate in how we've approached that category. But it's interesting because there's -- we're seeing success in the good, better, best strategy across the estate, even in a category that we don't talk about a lot like shoes. And on the runway, there were these beautiful riding boots. And we took a big bet on those beautiful riding boots, even though we had no history of selling very elevated product with minimal branding, frankly. It's GBP 1,500 pounds and up for the cavalier boots. And they have become among our best shoes and are meaningfully contributing to the growth of this small category. And that was such an important lesson for me because it's such a quintessentially Burberry item. It's something that in your mind, you would think that you could go to Burberry and find a beautiful English riding boot. And when we put it there, in the context of that beautiful fashion show collection, the customer responded and actually it was one of the items leading to customer acquisition. So I know I sound like a broken record with our team talking about the timeless British luxury brand expression and the good, better, best pricing architecture, but it really is resonating with our customers.

My second question on licensing. Could you give a bit of an update on your relationship, personal eyewear with Luxottica and of course, Beauty, I think Coty's CEO, Sunabi, gave interesting numbers recently, implying Burberry has been growing at about mid-teens percentage since 2019. So curious to hear your view here. And just on the cleanup of the older fragrance line that impacted your licensing revenue down high single digit in H1. I understand it will be the case also in H2. That shortfall of licensing revenue, if you gross that up to wholesale, i.e., Coty sales, there's quite a big number of bottles. So I was just curious what's happening to these models? Are they heavily discounted by Coty? Are they being destroyed, gifted? What is Coty doing to drive such a big decline in revenue given Goddess and Her, your top fragrance line are actually doing very well? And as I said, mentioned mid-teens sales for Burberry Beauty in the last 6 years.

Yes. So broadly speaking, we think we have 2 best-in-class licensing partners in Luxottica and Coty, and we are pleased with the trajectory. Within beauty and fragrance specifically, the fragrances that you mentioned, her and Goddess have been very strong. And similar to what we're doing in the core brand of focusing on the quality of sales, they're doing the same. They are -- because Goddess and Her are in a position of strength, they're able to destock on some of these lines that are older and less relevant. And so that is why you see this significant decrease this quarter. in the channel. Kate, I don't know if you have anything to add.

Yes. I mean I think the key being that we're still seeing good steady growth in those core lines. And in terms of the look forward, obviously, it's not something that's just done in the quarter. So we would actually expect the destocking to continue into the second half.

And be over by the end of fiscal '26.

Yes.

It's Daria from Bank of America. And congratulations on your results. I have 2 questions. The first one, could you please talk about what you're seeing in the U.S. market? You saw flattish no acceleration in trends in this geography. So I was just wondering, could you please help us understand how it's shaping up into the holiday season? And if I can just ask my second question straight away. Outside of some marketing reinvestment that you already mentioned, are there any other initiatives that we should be aware of for the cost savings for the second half, like bonuses, remuneration, anything that we should be modeling?

Kate, do you want to take the cost savings and then I'll talk about the U.S.

Sure. So yes, I mean, I guess there are a number of moving parts within cost. We've been very open about the incremental investment in marketing. Of course, the other piece is to consider, as always, there's inflation in our cost base. We've got a very high fixed cost base, 80% of fixed costs, that will be inflating at around 2%, 3%. You talk about people costs. Yes, there's the usual merit in there, and there will be potentially incremental performance-related pay, reflecting the performance being below what we would have expected for the last couple of years. And I guess those are probably the key moving parts. It will be people inflation and marketing.

And then in the U.S., the U.S. was the first region to return to growth for us. And what we've seen is that the brand expression and the way that we're showing up at retail in exciting ways is really resonating with the customer there. Our team in the U.S. has been very creative in terms of how in a market where retail traffic is so, so. How they're really going to the customer. They hosted over the summer. They hosted an exciting VIC event in the Hamptons, inviting customers from across the country to stay with the Burberry team and have a one-of-a-kind experience in the Hamptons.

They're planning something similar for the VICs for Aspen. And that's really for our top of the pyramid customers. And then we also have an opportunity there to really build on the broad universal appeal of the Burberry brand. And that's why this Bloomingdale's takeover -- facade takeover and activation is so powerful for us. Because it gives us an enormous stage to share with people the Burberry story and who may or may not come into our network of stores. And so it's that mix of how we do really high-end elite events and then customer-centric events with broad universal appeal for customer acquisition. And so we're really excited about the trajectory there.

I would just kind of step back from the U.S. specifically and just reiterate as we're at the end of the -- I think we're at the end of the Q&A. I would reiterate that after our first year of implementing Burberry Forward that we are more confident, I am more confident than I was 12 months ago. 12 months ago, this was really a thesis. It was a thesis that we were too niche. We were trying to be kind of a me-too of other brand strategies and that we weren't true to our own unique DNA.

And as we've leaned into that at all levels from the runway to the marketing campaigns to the type of visual merchandising you see in stores to our sites, that's resonating with customers. It's resonating with the customers we want to have. And long term, I see this as a bigger opportunity than I envisioned a year ago. We're going to do the right thing with the brand and do it in a steady, slow way, and we're not going to chase sales for the sake of it. But we're feeling confident in the Burberry Forward framework that this is the right path for value creation and for the brand relevance.

Thank you, Josh. I'll hand over to you for closing remarks.

[indiscernible] closing remarks, but I'll come up here. So really, as we approach 170 years, I want to thank all of my colleagues around the world who have been working so hard to drive Burberry Forward. You only see Kate and I up here, but this is literally the work of thousands of people around the world. And I'd also like to thank all of you, our investors, analysts and partners who have supported us on this journey. So thank you.