Find out why luxury fashion house Burberry is the FTSE’s biggest drop

– 35% drop in comparable sales in China

– Increased EMEIA store sales by 47%

– The company maintains its medium-term objectives

Shares in Burberry (BRBY) were the biggest falls for the FTSE 100 on Friday, down 6% to £15.50 after the British luxury brand reported moderate first quarter comparable sales growth of just 1% after its performance in terms of revenues have been affected by severe shutdowns in mainland China.

The good news is that Burberry hailed a strong recovery outside of China, with same-store sales up 16%, and new boss Jonathan Akeroyd confidently stuck to his mid-term targets for single-digit growth. revenues and margins of 20% for the luxury goods group.

SALES IN CHINA GRINDED

Burberry’s retail revenue rose a modest 5% to £505m in the 13 weeks to July 2, 2022, as progress was hampered by growing macroeconomic uncertainty and a headwind from China , where comparable sales fell 35% due to restrictions and store closures put in place. to control Covid-19 outbreaks.

Reassuringly, the cashmere scarf trench seller insisted that its performance in mainland China has been “encouraging” since reopening its stores in June, with the company adding that it was “actively managing the headwind of the ‘inflation”.

Akeroyd, who took over from Marco Gobbetti as chief executive in March, explained: “Our performance in the quarter continued to be impacted by lockdowns in mainland China, but I was pleased to see our approach more location drive recovery in the EMEIA (Europe, Middle East, India and Africa) region, where local customer spending was above pre-pandemic levels.

THE EMEIA REBOUND

Excluding mainland China, Burberry’s same-store sales rose 16% in the quarter, boosted by strong sales of leather goods and outerwear, with the Lola handbag line proving particularly popular.

Growth was strongest in EMEIA, where same-store sales jumped 47% as sales to US tourists rebounded, helping to offset lower sales to Chinese tourists.

“Our focus categories, leather goods and outerwear continued to perform well outside of mainland China and our brand activations program drove customer engagement,” Akeroyd said.

“While the current macro-economic environment creates some near-term uncertainty, we are confident that we can build on our platform for growth.”

Elsewhere in the luxury sector, the shares of Richemont (CFR:SWX) fell 5.1% to 95.8 francs on the Swiss stock exchange after brand owner Cartier reported lower first-quarter sales in mainland China, Macao and Hong Kong.

As Danni Hewson, financial analyst at AJ Bell, explained, while China’s latest GDP figures included news that retail sales had picked up in June, “there is a sense that this increase can only reflect the pent-up demand of people who couldn’t get out”. during the shutdowns, which means the month’s sales recovery could be unsustainable.

DISCLAIMER: The financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the publisher (Ian Conway) own shares in AJ Bell.

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Date of issue: July 15, 2022