18th May 2023 12:51
(Alliance News) - The return of tourists and the reopening of China provided an expected boost to Burberry Group PLC's annual results, released on Thursday.
The luxury fashion house reported revenue of GBP3.09 billion for the year ended April 1, increasing 9.5% from GBP2.83 billion the year prior.
The London-based maker of bags and trench coats noted strong performances from both leather goods and core outerwear, the sales of which increased by 12% and 7% respectively over the year.
Pretax profit was GBP634 million, increasing 24% from GBP511 million a year ago.
China's reopening helped fuel demand for Burberry's products, with sales in China jumping by 16% in the fourth quarter, but AJ Bell Investment Director Russ Mould noted that Burberry isn't solely reliant on that region to do well.
"Having a wealthy clientele is an advantage in the current economic climate as Burberry's typical customer is going to be less affected by the rising cost of living than someone whose pay packet is almost entirely gobbled up by bills and everyday essentials," he said.
"However," Mould cautioned, "that doesn't mean Burberry is immune from an economic downturn. We've seen in recent months signs of cracks in the luxury goods market. Diamond prices have been falling, so too the value of second-hand luxury watches as the market is flooded with supply."
On Wednesday, the De Beers arm of miner Anglo American PLC said rough diamond sales in its fourth sales cycles were down 21% from a year before, blaming "ongoing macroeconomic uncertainty and a slower pace of recovery in consumer demand from China than was widely anticipated".
"The fact Burberry hasn't lifted its guidance for the new financial year after reporting such a strong set of results, and reference to it being 'mindful' of the macroeconomic and geopolitical environment, appear to have been the trigger for some investors to take profits in the stock," AJ Bell's Mould added.
Shares in Burberry fell 6.6% to 2,355.00 pence on Thursday morning in London. Over the past 12 months, however, the stock is up 49%.
On Thursday, Burberry said it expects to meet its guidance for financial 2024, as well as its medium-term targets.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said the maintaining of existing guidance was "a little lacklustre" from Burberry, adding that investors would not be blind to the fact "significant" macroeconomic uncertainty persists.
"As a higher-end name, Burberry is more insulated from ups and downs than some, but it's not quite in the very top echelons of luxury fashion so there's slightly less room for manoeuvre," Lund-Yates said.
She added that as Burberry relies heavily on China, the changes in demand are "largely a rising tide that lifts all ships".
Luxury goods peers LVMH Moet Hennessey Louis Vuitton SE and Hermes International SCA have reported strong first-quarter figures so far in 2023, also boosted by the re-opening of the Chinese economy.
LVMH posted revenue of EUR21.04 billion in the first quarter of 2023, up 17% from EUR18.00 billion the previous year. Paris-based Hermes posted consolidated revenue of EUR3.38 billion, up 23% year-on-year at constant exchange rates.
Gucci-owner Kering SA's revenue growth was not as lofty, though it improved 2% to EUR5.08 billion.
Zainab Atiyyah, an analyst at research house Third Bridge, warned that this boost in sales from China is "likely to be short-lived" as an uneven economic rebound in China "puts the shackles on some travellers."
More positively, however, Atiyyah said that Burberry's efforts to revive its British heritage and elevate international perceptions of its brand have been proving a hit.
"Our experts say that [Chief Creative Officer] Daniel Lee's inaugural fashion show left industry insiders astounded, by his infusion of playfulness and eccentricity. This confidence and creativity set his debut collection apart from other luxury brands. These characteristics also resonate really well with Chinese consumers."
Lee, once of Italian luxury brand Bottega Veneta, was named as creative chief in September. In his fashion week debut, Lee moved to return Burberry to its roots and the equestrian knight logo made a comeback. It had been ditched by Tisci.
By Heather Rydings, Alliance News senior economics reporter
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