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Burberry sales hit by Chinese slowdown Burberry sales hit by Chinese slowdown
(about 9 hours later)
Burberry has blamed a sharp slowdown in sales on a tough market for luxury goods, in particular weaker demand from Chinese customers. Burberry blamed a sharp slowdown in sales on a tough global market for luxury goods, in particular weaker demand from Chinese customers.
Shares in the FTSE 100 company, known for its British-made trench coats and cashmere scarves, tumbled 12.6% on the news, to £12.36. This is a three-year low, and wiped £800m from Burberry’s stock market value. Shares across the luxury sector were hit, including Prada, Hermes, Kering and Salvatore Ferragamo. Shares in the FTSE 100 company, known for its British-made trench coats and cashmere scarves, tumbled 8% to a two-year low wiping more than £500m from Burberry’s stock market value. Shares across the luxury sector were hit, including Prada, Kering and Salvatore Ferragamo.
Burberry joins LVMH, which earlier this week became the first major luxury goods company to warn that the stock market collapse in China over the summer had affected sales, particularly at its flagship Louis Vuitton brand.Burberry joins LVMH, which earlier this week became the first major luxury goods company to warn that the stock market collapse in China over the summer had affected sales, particularly at its flagship Louis Vuitton brand.
China’s economic slowdown has sparked fears over the global economy. The country’s stock markets have seen repeated bouts of panic selling this summer, with “Black Monday” sending world markets into a spin. This prompted Beijing to take unprecedented measures to stop the rout, including the biggest devaluation of the renminbi in 20 years, to help exporters and boost the flagging economy. City investors and analysts were disappointed as Burberry said retail revenues were up only 2% to £774m in the most recent six months. Analysts had expected sround £818m. Comparable sales over the first three months of the period were up 6%, but slumped by 4% in the second quarter.
Carol Fairweather, Burberry’s finance chief, said: “The slowdown is macro. It has been driven by consumer sentiment.” She pointed to the Chinese stock market turmoil, renminbi devaluation and slowing economic growth. The company said pretax profit was now expected to be “broadly in line with the average of those analysts who have recently updated forecasts” or £445m. That figure was below the previous average forecast of £460m, but Carol Fairweather, Burberry’s finance chief insisted that the dip was not a profit warning.
She added: “But remember the Chinese customer is still travelling and shopping.” She explained that the Chinese were now going to Japan and mainland Europe to shop, rather than Hong Kong and the UK, which has been hampered by the pound’s strength against the euro. Fairweather said: “The slowdown is macro. It has been driven by consumer sentiment.” She pointed to the Chinese stock market turmoil, yuan devaluation and slowing economic growth.
Sales in mainland China and Asia Pacific as a whole fell in the six months to the end of September, Burberry’s first half. Asia makes up 40% of the company’s revenues. She added: “The Chinese customer is still travelling and shopping.” She explained that the Chinese were now going to Japan and mainland Europe to shop, rather than Hong Kong and the UK, which has been hampered by the pound’s strength against the euro.
In Hong Kong, sales crashed more than 20% in the second quarter, but Fairweather insisted that all of Burberry’s stores there were still profitable. UK fashion chain Ted Baker has also taken a hit in China and Hong Kong, saying people from the mainland were now being granted visas to come and shop only once a week. China’s economic slowdown has prompted fears over the global economy. The country’s stock markets have seen repeated bouts of panic selling this summer, with “Black Monday” sending world markets into a spin. This prompted Beijing to take unprecedented measures to stop the rout, including the biggest devaluation of the yuan in 20 years, to help exporters and boost the flagging economy.
Burberry’s sales in mainland China and Asia-Pacific fell in the six months to the end of September. The region makes up 40% of Burberry’s revenues.
Sales at established stores in Japan rose by 50% from a low base. But Burberry missed out on Chinese shoppers’ dash to the country as it closed hundreds of small outlets after buying back out its long-term licensee. The brand is moving upmarket from its traditional position in Japan, bringing in luxury products and a retail image in line with the rest of the world. The company has six standalone stores and 29 concessions at present. It plans to open a further 10 by 2020 and up to 40 new concessions. Fairweather said Burberry was “just at the beginning of a journey”.
In Hong Kong, sales crashed more than 20% in the second quarter, but Fairweather insisted that all of Burberry’s stores there were still profitable. UK fashion chain Ted Baker has also taken a hit in China and Hong Kong, saying visas were being restricted for people coming from the mainland.
Anusha Couttigane, senior consultant at Conlumino, said: “Weakening consumer sentiment, especially since the crash of the Chinese market during the summer, has transformed a once booming region into Burberry’s chief area of concern.”Anusha Couttigane, senior consultant at Conlumino, said: “Weakening consumer sentiment, especially since the crash of the Chinese market during the summer, has transformed a once booming region into Burberry’s chief area of concern.”
She wondered whether Burberry may have relied too much on its heritage lines of trench coats with trademark chequered lining and scarves, but added: “With Christmas coming, the burgeoning beauty business could just have the power to revive Burberry’s wholesale fortunes.”
Burberry has moved into selling make-up and perfumes including Brit Splash and Mr Burberry eau de toilette. It has just launched a “Scarf Bar” in stores and online, which features an expanded range of cashmere scarves in over 30 colours and a short film shot at the Scottish mills in Elgin and Ayr where the scarves are made. Monogrammed blanket ponchos have been updated for the autumn/winter season in classic, prints and block colours.
Christopher Bailey, chief executive and chief creative officer, said he hoped that Burberry’s plans for the festive season – Christmas and Lunar New Year in China and Korea – would return it to a “more positive sales trend in the all-important second half”.Christopher Bailey, chief executive and chief creative officer, said he hoped that Burberry’s plans for the festive season – Christmas and Lunar New Year in China and Korea – would return it to a “more positive sales trend in the all-important second half”.
Retail revenues at the group rose 2% to £774m in the first half. That was below the analysts’ average forecast of £818m. Comparable sales were down 4% in the second quarter after rising 6% in the first. The company has stepped up efforts to cut costs by £20m to minimise the impact on this year’s profits, which include a hiring freeze outside its retail operations.
The company has stepped up efforts to cut costs by £20m to minimise the impact on this year’s profits, which include a hiring freeze outside its retail operations. It expects adjusted pretax profit to be broadly in line with the average of those analysts who have recently updated forecasts, which is £445m. Previously, the average forecast was £460m. The company will highlight its traditional scarves in a new advertising film for Christmas – after successfully generating publicity for its trenchcoats with last year’s ad featuring Romeo Beckham.
In the US, sales slowed in the past three months, while the rest of the Americas saw double digit growth in the past six months. Europe was another bright spot: Comparable sales were up more than 20% in Italy, France and Spain which significantly outperformed the UK. Burberry also hopes to generate growth from a move into selling make-up and perfumes including Brit Splash and My Burberry eau de toilette.
In the US, sales slowed in the past three months, while the rest of the Americas experienced double-digit growth in the past six months. Europe was another bright spot: comparable sales were up more than 20% in Italy, France and Spain which significantly outperformed the UK.
The company opened 14 standalone stores and 16 concessions in the past six months, including a new flagship store in Tokyo along with shops in Seoul, New York and Dubai.The company opened 14 standalone stores and 16 concessions in the past six months, including a new flagship store in Tokyo along with shops in Seoul, New York and Dubai.
Jeremy Cook, chief economist at foreign exchange firm World First said: “If the devaluation of the yuan and the weakness of Chinese and emerging market economies were the first shoe to drop, then the slowing of demand and sales for luxury retailers like Burberry is surely the next. Jeremy Cook, chief economist at foreign exchange firm World First, said: “If the devaluation of the yuan and the weakness of Chinese and emerging market economies were the first shoe to drop, then the slowing of demand and sales for luxury retailers like Burberry is surely the next.
“Burberry is in an interesting position as a result of its international expansion with exposure to some of the most volatile currencies out there; everyone is focused on the yuan but the moves in the Russian rouble, South Korean won and the euro will have made trading conditions very difficult.”“Burberry is in an interesting position as a result of its international expansion with exposure to some of the most volatile currencies out there; everyone is focused on the yuan but the moves in the Russian rouble, South Korean won and the euro will have made trading conditions very difficult.”