Shares in Burberry suffered their sharpest one-day fall in six months on Wednesday after the luxury fashion house reported slowing sales growth, despite an “exceptional” performance in the UK.
The group said that while sales in its home market had been boosted by sterling’s weakness and growth in China had accelerated, helping it increase revenues in its second half, these factors were not enough to lift overall sales.
Total revenues slipped 1 per cent at constant currencies to £1.6bn on the back of a shrinking US market and Burberry’s “destocking” of its beauty range as it prepares for a new licensing partnership with cosmetics group Coty.
Burberry shares shed as much as 6 per cent after retail sales growth for its latest quarter at 2 per cent, compared with 3 per cent in the previous quarter, failed to meet analysts’ expectations.
Christopher Bailey, chief creative officer, and chief executive until former Céline head Marco Gobbetti takes up the role in July, said Burberry faced an “uncertain environment”. But he pointed to a “strong customer response” to new products after the label’s February fashion show.
Retail revenues were up 3 per cent stripping out currency effects, or 19 per cent at current exchange rates, to £1.27bn for the six months ending in March — but growth slowed in the most recent quarter.
Analysts at Liberum noted that despite the “strong” trading update, the results were flattered by favourable currency effects as the pound has slumped since last June’s Brexit vote.
Tom Gadsby at Liberum said the “small slowdown” in like-for-like sales in the fourth quarter “may give the market pause for thought”.
Earlier this month, Burberry abandoned its own experiment with developing a fragrance business, announcing that it would instead be teaming up with Coty in a franchise operation. The shift helped push down Burberry’s wholesale revenues by 13 per cent to £327m, with half of the decline coming from the beauty division.
Known for its trademark trenchcoats, Burberry said first-half sales were buoyed by its accessories range, which accounts for more than a third of group revenues. Its signature “Banner” handbag helped push sales of bags up 20 per cent, with mid-teens growth in leather goods.
Revenues at its accessories business, which also includes shoes and scarves, rose 4 per cent, excluding the effect of exchange rates, ahead of Burberry’s clothing divisions. Its women’s clothing business, which accounts for the second-largest proportion of sales after accessories, shrank 2 per cent on an underlying basis.
Growth in the US and Americas declined on the back of a stronger dollar and cutbacks to its promotional sales, said Burberry.
But the fashion house added that Americans were still buying its products overseas, with a 90 per cent rise in purchases by US consumers in the UK as tourists took advantage of the fall in the pound since the Brexit vote last June.
Double-digit growth in the Europe and Middle East region was driven by a 40 per cent increase in UK sales, with rises in both domestic and tourist sales. Burberry’s performance in France also improved, helped by higher demand from visitors from China, but the company said the Middle East remained “challenging”.
Sales in China rose in the “high single digits”, but fell in Hong Kong and Korea.
The company’s shares were down 5.6 per cent to £16.06 by late morning in London.