A Brexit bounce in UK sales was not enough to lift the gloom at Burberry as the luxury brand battles a global slump in demand for designer clothes and handbags.
The British company said a 30% surge in domestic sales helped counteract weaker performances in important overseas markets such as Hong Kong and a steep fall in orders from department store buyers, particularly in the US. The trench-coat maker said its full-year profits would also receive a £125m boost from the devaluation of sterling as about 80% of its sales are overseas.
Burberry chief financial officer Carol Fairweather said the drop in the value of the pound had been “so significant” that tourists coming to the UK were splashing out, with its new satchel-style Bridle bag, the cheapest version of which starts at £1,200, among its current bestsellers.
“The Chinese are very much part of that, but all tourists are up in this quarter, the US as well,” she said. “[They are] clearly influenced by foreign exchange rates movements but they are also really responding to everything they are seeing in the stores.”
The update did not cheer investors, with Burberry shares ending the day as the biggest faller in the FTSE 100, down more than 7%. The stock was knocked by the decision by Bank of America Merrill Lynch, one of the company’s house brokers, to cut its rating from “buy” to “neutral”, noting that company’s share price had enjoyed a strong run after hitting a 14-month high on Friday.
Despite headline-grabbing initiatives such as making the clothes in last month’s London fashion week show instantly available online, dreamt up by its chief executive, Christopher Bailey, Burberry is grappling with an industry-wide slowdown.
It plans to strip out £100m of costs over the next three years but Fairweather insisted that it had not abandoned plans to invest £50m in a new factory in Leeds. “We are taking a moment to relook at the detail of this plan. There is no change to our commitment to renewing our factories in Yorkshire,” she said.
Burberry had previously outlined plans to move all 800 manufacturing staff based in two separate sites in Castleford and Keighley to Leeds by 2018, with work on the new facility, named Project Artisan, due to start next year. Fairweather admitted it was looking at the timing of the project, but added: “Our intentions are unchanged ... we are working through the details and getting into the nuts and bolts of the project.”
The strong UK performance helped Burberry generate a 2% rise in underlying retail sales in the three months to 30 September, marking its return to growth after a year of declines by this measure. After stripping out currency effects, total sales were down 4% at £1.16bn in the first half, pulled down by a weak performance at its wholesale arm where revenues tumbled 14%.
Broker Liberum, which rates the stock as a sell, said Burberry “struggles to drive meaningful growth” and it did not expect a pick-up in demand from US department store customers in the coming months. Its analysts also point to the arrival of new chief executive Marco Gobbetti, from French brand Céline, to work alongside Bailey next year, who will become president and chief creative officer. His plans could potentially hit the outlook for profits, they warn.
