Shares in Burberry have slumped after the luxury brand revealed that strong sales in the UK and China had failed to offset a slowdown in the US and Hong Kong.
Burberry’s share price slid nearly 8% on Wednesday amid investor disappointment that the British label had not echoed the bullish performance of Louis Vuitton owner LVMH last week which had appeared to herald a turnaround in the luxury market.
Underlying retail sales rose 2% in the three months to 31 March, compared with growth of 3% in the previous quarter, as demand in the US fell, partly as a result of a pull back on promotional offers. The relative strength of the dollar during the period also encouraged Americans to shop abroad.
Analysts are now concerned that the benefits Burberry has enjoyed from the low value of the pound will disappear given the recent rise in sterling ahead of the UK general election.
Total revenues slid 1% to £1.6bn on an underlying basis but rose 14% once the benefits of changing exchange rates were included.
Analysts at Liberum said: “News of a snap UK election has seen a strong rally in the pound. Should this continue towards polling day Burberry’s own, FX-driven rally could disintegrate.”
Burberry said it had enjoyed an “exceptional” performance in the UK, where tourists are taking advantage of the low value of the pound to pick up bargain bags and trench coats. Julie Brown, chief operating and financial officer, told analysts that UK sales were up by nearly 40% in the six-month period.
However, sales in Hong Kong, Korea and the Middle East all fell as a result of local factors including travel restrictions and the falling oil price. This came alongside a 5% decline in sales in the Americas. Beauty wholesale revenues also fell by about 20% as the company continued to rationalise its distribution after taking its cosmetics and perfume business in-house in 2013.
The company, famed for its trenchcoats and distinctive check patterns, is expected to make redundancies in its beauty division after signing a licence agreement with US beauty firm Coty earlier this month, a major U-turn after paying €181m to end a previous licence relationship with Interparfums four years ago.
The deal comes as Christopher Bailey, chief creative and executive officer, prepares to hand over the chief executive role to former Céline boss, Marco Gobbetti, in July. Gobbetti is already at Burberry but has begun by heading up its Asian business because of other contractual commitments.
Bailey said: “In an uncertain environment, we continue to take action to strengthen the brand and reposition Burberry for growth. The outperformance of fashion and the strong customer response to new products underline our renewed creative momentum ... As we build on our progress so far, we remain confident about Burberry’s prospects in the longer term.”
