14th Oct 2014 08:54
LONDON (Alliance News) - British luxury fashion retailer Burberry Group PLC Tuesday said sales growth slowed in the second quarter as its key travelling Chinese consumers splurged out less on its clothes and leather goods, and it warned that weak consumer confidence in Europe and slower Asian growth would weigh on its second half.
The warning about the slowdown echoes comments from other luxury goods companies, who are facing increased worries about demand from China in the wake of the political issues in Hong Kong and as sanctions on Russia in the wake of the crisis in Ukraine hits demand from that country.
Burberry was the worst performing stock on the FTSE 100 Tuesday morning, down 4.8% to 1,410.00 pence, after it said revenue rose 14% on an underlying basis in the six months to September 30, to GBP1.1 billion, buoyed by 15% sales growth in retail revenue, and 13% growth in wholesale revenue. It said licensing revenue was down 3% on an underlying basis.
On a reported basis, retail and wholesale sales were up only 8%, while licensing revenue was down 18%.
That marked a slowdown from the first quarter when it had reported underlying sales growth of 17%, or 9% on a reported basis. Comparable retail sales growth in the first quarter was 12%, but slowed to 8% in the second quarter.
Burberry said it now expects a smaller profit hit from currency moves than previously expected for the full financial year. It had previously forecast a profit hit of around GBP65 million for the full year from sterling strength, but Burberry said some of that pressure has eased and it is now expecting a GBP35 million hit.
Still, it also warned that some of that benefit would be erased because trading is becoming tougher. Burberry warned of a "tougher macro environment" for the second half, but would not clarify what the more "difficult" environment for the remainder of the year would be.
"All I'm saying is that we are mindful of what's happening in Hong Kong, what's happening in China and the Middle East," Chief Financial Officer Carol Fairweather told journalists Tuesday.
Burberry said demand in the second quarter and the first half overall, continued to be driven by double-digit sales growth in Asia Pacific and the Americas, with travelling "luxury customers", particularly from Asia, driving that growth, buoyed by the relaunch of its heritage trench coat, womens Prorsum, leather bags and mens tailoring.
However, Chief Financial Officer Carol Fairweather told journalists Tuesday, that Chinese consumers shopping both in China and when travelling abroad, had slowed in the second quarter, a trend it expects to continue during the second half of the year.
"We still saw good growth in china, it just wasn't double digit growth. We are mindful of the macro, but believe we continue to outperform on the back of all the investments we are making in digital, etc," said Fairweather.
It now expects wholesale revenue at constant exchange rates to be down by a mid single-digit percentage for the current financial year to end of March 2015 with a more cautious approach from customers selling to the European consumer and in Asian travel retail markets.
"This is expected to result in slight downward pressure on the retail/wholesale margin, as we continue to invest in key initiatives to drive long-term profitable growth. Our goal to realise further margin improvement over time remains unchanged," it said.
Burberry's sales in the second quarter continued to be driven by demand for its outerwear and large leather goods, such as its iconic trench coats and check-print patterned goods, while wholesale sales benefited from earlier deliveries and in-season orders in the first half, it said.
It said it expects currency moves to now wipe around GBP25 million off its retail/wholesale profit for the full year, and reduce its adjusted operating margin from 17.5% to around 17.0%. Burberry said it also expects around GBP10 million to be wiped off of its licensing revenue.
The retailer opened nine mainline stores during the first half, most of which were in airports and in Europe, including London Heathrow, Barcelona and Milan. Burberry now trades from a total of 216 retail stores, 224 concessions, 55 outlets and 66 franchise stores.
"While mindful of the more difficult external environment, we have never been better prepared internally for the all-important festive periods," said Chief Executive Christopher Bailey.
Burberry said it will announce its interim results on November 12.
By Rowena Harris-Doughty; [email protected]; @rharrisdoughty
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