Luxury goods leader Burberry (BRBY) bounced 3.9% higher to £14.29 on Friday after the trench coats-to-cashmere scarves seller said sales in Mainland China and Korea since the start of April were already ahead of the prior year and ‘continuing to show an improving trend’.
While encouraging, Burberry warned the luxury industry could take some time to recover from the COVID-19 pandemic as it reported a 27% drop in like-for-like sales for the final quarter of the year ended 28 March 2020, which ended with about 60% of its retail stores closed.
The FTSE 100 fashion house pulled the final dividend as annual profits plunged, resulting in a 73% slump in the full year dividend to 11.3p, with management focused on protecting Burberry’s cash position. It will review future pay-outs at the end of its 2021 financial year.
Burberry explained it is ‘not in a position to provide specific guidance for full year 2021 at this stage as it is currently challenging to predict the course of the pandemic and the longer lasting economic consequences.’
Currently, 50% of its stores are closed and Burberry expects ‘our first quarter (to end June 2020) to be severely impacted with store closures likely to be at or near peak for most of the quarter.’
DULL ASIA DEMAND WEIGHS
Results for the year ended 28 March 2020 reflect the struggles the Marco Gobbetti-bossed business has been going through over the past year on the back of lower demand in Asia, a region badly hit by US-China trade tensions, the Hong Kong protests and the coronavirus epidemic.
The British heritage brand saw pre-tax profit fall to £169m from £441m and revenues weakened 3% to £2.6bn.
‘We have a strong balance sheet and liquidity, with space for investment when markets recover,’ commented Gobbetti, adding it will ‘take time to heal but we are encouraged by our strong rebound in some parts of Asia and are well-prepared to navigate through this period.’
TURBULENT TIMES AHEAD
As Russell Pointon, director and head of consumer at Edison Investment Research, pointed out, ‘Prior to the pandemic, Burberry began to focus on leather goods and accessories in a bid to diversify their brand towards more resilient and growing sectors in the market and that has helped them navigate the current landscape.
‘Although they’ve had to put a hold on their plan to revive sales with star designer Ricardo Tisci, the opening of stores mainly in Asia should provide some comfort and hope for the company.
‘With much of the world still in lockdown, and hence no open shops, turbulent times still lie ahead for Burberry. Nevertheless, given its strong online offering as well as diversification of products, it will be interesting to see if consumers will continue buying online or potentially holding off from luxury during the coming months.’