Burberry third-quarter sales jump eases China slowdown fears

From left: Lanvin; Jil Sander; Louis Vuitton; Burberry Prorsum

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Burberry has eased fears of a slowdown in demand for its luxury goods in China, but warned that the strength of sterling could hurt its profits.

In a third-quarter trading update, Burberry, which is going through its biggest management transition in seven years, said total retail revenues in the three months to the end of December rose 14 per cent to £528m, ahead of analyst expectations.

Revenues in the Asia-Pacific region, which accounts for about 35 per cent of the group’s total sales, were up by a “double-digit percentage”.

Carol Fairweather, finance director, said sales from stores open at least a year in China moved from a growth rate in the high single digits to a double-digit figure, helped by the lunar new year falling at the end of January, 10 days earlier than last year.

“We think we benefited from the local Chinese consumer buying presents in advance of Chinese new year,” said Ms Fairweather.

She also pointed to strong performances in Hong Kong, Taiwan and Macau.

The update comes a week after fellow luxury goods groups Swatch and Tiffany also reported buoyant sales, easing concerns over the effects of the Chinese government’s crackdown on ostentation.

However, Burberry warned that translating dollar-linked currencies back into sterling would curtail profit by about £5m. Ms Fairweather said this would particularly affect the US business and sales from Hong Kong.

“We are a global business. The impact of foreign exchange is more around the impact on the translation of the overseas profits,” she said. “The underlying business remains strong.”

Burberry said on Wednesday same-store sales increased by 12 per cent in the three-month period compared with the third quarter of last year, above analysts’ expectations of an 8 per cent gain.

Ms Fairweather said sales had been helped by Burberry boosting its customer service – both in stores and online – increasing staff by 30 per cent in this area.

All staff in stores globally now carried iPads, while click and collect was available in 100 stores, compared with only a handful a year ago.

In-store footfall was “weak”, but the migration of shoppers online continued apace. Burberry includes sales made via iPads in stores in the online category.

Ms Fairweather said that although there were no plans to close stores, the portfolio would evolve. The changing traffic dynamics would intensify the focus on flagship stores, with the company closing some sites as leases came up for renewal, particularly in China.

Burberry stuck to its November forecast for a “modest” increase in its full-year retail and wholesale operating profit margin, which was 17.1 per cent in its 2013 financial year.

Angela Ahrendts, chief executive, is leaving the company to join Apple as head of its retail operations and will be succeeded by Christopher Bailey, who is currently chief creative officer, later in the year.

Shares in Burberry were trading 5.4 per cent higher at £15.48 in London.

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