Investment Rating - The report maintains a "Buy" rating for the company, with a target PE of 14 times for 2025 [7]. Core Views - The company reported a revenue increase of 2% year-on-year for H1 2025, reaching 11.57 billion yuan, while the net profit attributable to shareholders decreased by 3% to 1.58 billion yuan. The non-recurring net profit increased by 4% to 1.57 billion yuan [1]. - The gross margin improved by 1.1 percentage points to 46.4% in H1 2025, indicating enhanced profitability quality [1]. - The company is expected to see steady recovery in profitability quality in H2 2025, driven by new store openings and improved project profitability [5]. Revenue and Profitability - For Q2 2025, the company achieved a revenue of 5.38 billion yuan, a 4% increase year-on-year, while the net profit attributable to shareholders fell by 14% to 650 million yuan [2]. - The gross margin for Q2 2025 increased by 2.6 percentage points to 46% [2]. - The main brand's revenue for H1 2025 decreased by 6% to 8.39 billion yuan, but the gross margin improved by 2.2 percentage points to 48.3% [3]. Brand and Channel Performance - The main brand's performance in Q2 2025 improved compared to Q1, with a significant focus on technology, fashion IP, and quality products [3]. - The group purchase and customization series saw a revenue increase of 24% to 1.34 billion yuan in H1 2025 [3]. - Direct sales channels outperformed franchise channels, with direct sales revenue increasing by 17% to 2.9 billion yuan in H1 2025 [4]. Cash Flow and Inventory Management - The company's inventory at the end of H1 2025 increased by 7.3% to 10.26 billion yuan, with inventory turnover days rising by 49.7 days to 322.6 days [5]. - The net operating cash flow for H1 2025 was 2.72 billion yuan, approximately 1.7 times the net profit attributable to shareholders [5]. Financial Projections - The company expects revenue growth in the low single digits for 2025, with a significant increase in net profit attributable to shareholders [5]. - Projected net profits for 2025, 2026, and 2027 are 2.45 billion yuan, 2.84 billion yuan, and 3.23 billion yuan, respectively [6].

Core Viewpoint - Burberry is facing significant challenges in the Chinese luxury market, which has cooled down after a period of growth during the pandemic, leading to a strategic shift in the company's approach to marketing and product offerings [2][6][10]. Group 1: Market Conditions - The Chinese luxury market has experienced a drastic shift since 2020, with a surge in luxury consumption during the pandemic followed by a sharp decline starting in the second half of 2023 [2][6]. - Globally, the luxury goods industry is also facing difficulties, with Bain & Company projecting a 1% decline in global luxury sales for 2024 and a downward adjustment for 2025 from a growth forecast to a decline of 2% to 5% [6]. Group 2: Company Performance - Burberry's revenue for the fiscal year 2025 is expected to decline by 15% at constant exchange rates, with comparable store sales in mainland China down by 15% and a 16% drop in the Asia-Pacific region, which accounts for nearly half of Burberry's business [6][10]. - The company has acknowledged that its rapid brand innovation efforts may have been excessive, leading to challenges in managing brand transformation amidst market fluctuations [6][10]. Group 3: Strategic Initiatives - Under the new CEO Joshua Schulman, Burberry has launched the "Burberry Forward" transformation strategy, focusing on inventory management, cost reduction, and enhancing collaboration between commercial and creative teams [7][10]. - The company aims to strengthen its local marketing efforts in China, recognizing the need for a more localized narrative to resonate with younger consumers who increasingly identify with domestic culture [9][10]. Group 4: Consumer Engagement - Burberry is upgrading its existing stores and considering innovative concepts like introducing cafes in larger stores to attract a broader customer base [10]. - The brand is adjusting its pricing strategy, lowering prices on non-core items while maintaining premium pricing on key products like trench coats, aiming to appeal to a wider range of consumers, including the middle class [10][11]. Group 5: Future Outlook - Despite current economic pressures, Burberry remains optimistic about the Chinese market, which continues to produce a new generation of consumers with purchasing power [11].