Burberry committed to Hong Kong despite sales slowdown

FALLING sales in Burberry’s Hong Kong market will not deter the British luxury brand from its commitment to one of its most profitable regions, the company said today.

Burberry Prorsum

Pro-democracy protests in the city, which accounts for around 10 per cent of Burberry’s total retail and wholesale sales gathered pace last year, keeping mainland Chinese tourists away.

The 159-year-old firm, famous for its Yorkshire-made trench coats and cashmere scarves, said Hong Kong comparable store sales fell by a double-digit percentage in the three months to June 30, its first quarter.

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Shares in Burberry, already down 9 per cent over the last three months after a cut in profit guidance in May, fell up to a further 3.7 per cent, to be the top FTSE 100 faller, despite the group maintaining most of its guidance.

“We manage the business for the long term, always looking through that lens,” chief financial officer Carol Fairweather said.

“All of those (Hong Kong) stores remain profitable and so no change to strategy.”

However, the CFO said that as leases on its 17 Hong Kong stores come up for renewal Burberry may push for lower rents if sales falls persist.

She said Burberry was focusing on local Hong Kong customers with specific marketing initiatives, while keeping a tight control of costs.

“The near term will be challenging due to currency volatility and weakness in Hong Kong and China,” said Sohil Chotai, an analyst at Edison Investment.

Burberry’s Asia Pacific region as a whole posted a low single-digit percentage comparable sales decline, though mainland China grew by a low single-digit percentage.

The firm continued to see growth from the travelling Chinese customer in all markets other than Hong Kong. Chinese shoppers account for 30-40 per cent of Burberry’s global revenue.

Ms Fairweather said Burberry was mindful of the possible impact of recent turmoil in the Chinese stock market but was focusing “on what we can control”.

Overall Burberry posted first-quarter retail sales up 8 per cent to £407m, below analysts’ average forecast for £414m and below the 13 per cent growth recorded in the second half of Burberry’s 2014-15 year.

Comparable store sales growth was 6 per cent, down from 9 per cent in the second half.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: “Despite its recent chequered history, this update is rather more upbeat than the full year numbers in May.

“Admittedly, the situation in the Asia Pacific region remains mixed, particularly in Hong Kong where trading is under pressure.

“However, the currency headwinds have improved, the company continues to refine its retail store portfolio to maximise selling opportunities, while its digital presence goes from strength to strength.

“In overall terms, the durability of its iconic products continues to appeal to its higher end customers, whilst the broadening of the brand to the likes of fragrances is already starting to pay dividends.

“Given that the first quarter is historically the quietest for retail, this bodes well for the remainder of the year, especially given Burberry’s statement that there are some ‘exciting plans’ for the year ahead.

“Burberry’s updates had become the source of high expectations until the slight disappointment in May, such that over the last three months the share price has dipped by 9 per cent.

“Over the last year, however, the shares have added 13 per cent, as compared to a flat FTSE 100 in that period, with the market consensus recently having improved to a cautious buy in light of prospects.”