Burberry warns strength of pound likely to dent profits

Christopher Bailey, Chief Creative Director of Burberry
Christopher Bailey, Chief Creative Director of Burberry
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LUXURY retailer Burberry reported better than expected sales over the past three months, but warned that the strength of the pound will hit this year’s profits.

Burberry, best known for its camel trenchcoats which are made in Castleford, reported a 12 per cent increase in like-for-like sales in the three months to June 30.

Retail revenue including new stores rose 17 per cent to £370m.

Burberry’s upward trend is beating rivals such as Louis Vuitton and Gucci, which are seen as global brands and lacking Burberry’s British cachet.

The firm, led by Halifax-born CEO Christopher Bailey, has become particularly popular in China where a growing affluence among consumers had led to strong demand for British brands.

Warwick Business School’s professor of marketing and innovation Qing Wang said: “Burberry epitomises the essence of Britishness: tradition and heritage combined with design and technology. Therefore not surprisingly, it delivered a strong performance again, helped by the demand in Asia-Pacific, particularly in China.

“This is significant, because it has been achieved in the aftermath of the Chinese government’s clamp down on corruption. Therefore, its sales are primarily driven by private consumption and thanks to the fast-growing rich upper middle class consumers in Asia-Pacific, the appetite for British luxury brands like Burberry is set to continue.”

But the group warned that the strength of the pound is expected to hit future sales.

Burberry said exchange rates will knock around £55m off this year’s profits.

The firm said demand in the UK is solid but it has seen a slowdown in continental Europe following a decline in tourist sales.

Burberry started running its perfume business directly last year after ending a partnership with Interparfums. It expects to roll out its first skin care products next year.

The brand, which has branched out into make-up and nail polish, said it expects beauty revenue to rise 25 per cent this year.

It said it expects broadly unchanged revenue at constant exchange rates in both Japan and global product licences.

Analyst Sam Hart at Charles Stanley said: “We expect global demand for luxury goods to remain reasonably buoyant over the medium term, given our expectation that the global economic environment will continue to slowly improve and our belief that luxury goods is a long term structural growth market. Drivers include expansion of middle-class populations in emerging markets and an increasing number of high net worth individuals globally.”