14th Apr 2016 10:05
LONDON (Alliance News) - Shares in Burberry Group PLC sank Thursday as the luxury coats and bags retailer reporting deteriorating sales over the course of the past six months and warned of a challenging demand environment for its new financial year.
Burberry shares were down 7.0% on Thursday mid-morning to 1,250.00 pence, the clear worst performer in the FTSE 100.
Burberry said the outlook for the current financial year, to the end of March 2017, looks challenging, with underlying cost inflation pressures on the business still significant.
Wholesale revenue is expected to fall further in the first half due to tighter inventory controls among US customers and cautious ordering in other regions, while Japanese licensing revenue will continue to decline as licences expire.
Due to this, Burberry said it expects adjusted pretax profit for 2017 to be at the low end of analyst expectations, even including a potential benefit from foreign exchange, based on current rates.
Much of the focus for Burberry will now turn to boosting productivity and efficiency across the business, more details of which are expected when it publishes its full annual results in May.
"In an external environment that remains challenging for luxury, we continue to focus on reducing discretionary costs and are making good progress with developing enhanced future productivity and efficiency plans," said Burberry Chief Executive Christopher Bailey.
The gloomy outlook for the current financial year was reinforced by Burberry reporting that comparable sales fell 2.0% in the second half of its recently completed financial year to the end of March, with a sharp deterioration in its performance in the fourth quarter.
The third quarter had delivered a degree of hope to the battered luxury goods sector. Burberry sales were flat in the third quarter, a big improvement on the declines seen during the first half, helped by mainland China returning to growth and a solid performance in Europe, the Middle East, India and Africa.
But after the flat third quarter, like-for-like sales fell 5.0% in the fourth quarter, Burberry said.
Asia Pacific comparable sales declined in the half, hit hard by declines in excess of 20% in Hong Kong for the third successive quarter. Hong Kong and Macau have both been bruised by plunging footfall, due to lower numbers of mainland customers from China travelling over to shop. Excluding Hong Kong and Macau, comparable sales in Asia Pacific edged up, Burberry said, with growth in mainland China, Korea and Japan.
EMEIA sales were flat in the second half, again due to a weaker fourth quarter following growth in the third. Burberry blamed the decline in the fourth quarter on lower travelling luxury shoppers, particularly from China, which was only partially offset by growth in sales to domestic customers.
Comparable sales in the Americas declined in the second half, Burberry said, again with a softer fourth quarter. Demand from US customers remained uneven throughout the half, while the spend by travelling luxury customers sunk.
Digital sales grew across Burberry's regional operations, driven by mobile activity, the company said.
On a product basis, accessories continued to outperform apparel sales, Burberry said, with particularly strength in scarves and ponchos. The group said its new runway season rucksack and Banner bag performed well, though outerwear was impacted by unseasonably warm weather. Still, Burberry said its lightweight cashmere trench coats outperformed the market.
Wholesale revenue declined in the second half. EMEIA revenue increased, driven by growth from existing accounts and benefits from transitioning its childrenswear business in Europe to direct operation. But wholesale revenue from the Americas and Asia Pacific regions declined by double-digit percentages, Burberry said, reflecting cautious ordering patterns by customers and re-phasing of orders in the Americas.
Beauty wholesale revenue rose in the second half, however, driven by the sell-in of its new male fragrance, Mr Burberry.
Licensing revenue, meanwhile, fell 50% on an underlying basis, reflecting the expected expiry of Japanese licences over the course of the year.
By Sam Unsted; [email protected]; @SamUAtAlliance
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