Burberry’s sales growth fails to impress investors

Worldwide
Published:  19 April, 2017

Despite reporting a 3% growth in retail sales in the six months to March 31, 2017, shares of the British luxury fashion label suffered its sharpest fall in six months, down 6% in the early morning of April 19.

If total retail revenue, which accounts for 80% of Burberry’s total sales, was up 3% in the period to £1.27 billion (US$1.62 billion), wholesale and licencing revenues were down 13% and 38% respectively. Overall, the brand reported a total revenue of £1.61 billion (US$2.05 billion) in its half-year trading update, down -1%.

According to the report, low single-digit growth was achieved in the Asia Pacific region, Mainland China delivered high single-digit percentage growth, accelerating through the half, while sales in Hong Kong declined, due to “negative footfall only partially offset by improved conversion”. Sales in South Korea, the brand’s third largest market in Asia, also declined, impacted by both the macro environment and the company’s decision to reduce promotional activity.

Double-digit percentage growth was reported in EMEIA. European sales are said to have improved through the half, particularly France, while the Middle East remained challenging. The Americas recorded mid-single-digit percentage decline. According to Burberry, the relative strength of the U.S. dollar drove a strong increase in sales from US customers abroad, while demand at home reduced, both domestic and tourist. “In addition, strategic actions taken to protect brand positioning in the highly promotional U.S. environment, contributed to the decline”, says the report. Overall, the brand reports a more intensive digital traffic, with the Chinese website nearly doubling direct consumer sales.

“In what remains a rapidly changing environment, Burberry will continue to take actions to elevate and strengthen its brand positioning, maintain tight discipline on costs and execute on its strategic agenda, including the transition of its Beauty business to a licence agreement. Our focus is on our brand, our products and the execution of our five strategic pillars to return Burberry to growth”, said the company in a statement, adding that it is on track to deliver the planned cost savings of £20 million (US$25.65 million) in 2017 increasing to at least £100 million (US$128.27 million) annualised in 2019.

However, despite the signs of the fashion brand’s repositioning beginning to pay off, some market analysts say that much of the numbers in the report were flattered by favourable currency effects since the pound sterling slumped following the referendum results in June 2016.

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