Shares in luxury goods leader Burberry (BRBY) fell1.4% (27.5p) to £19.90 on Friday after the British heritage brand pulled guidance for the year to March 2020, blaming the coronavirus for hitting demand for high-end goods in mainland China and Hong Kong.
The tragic outbreak is having ‘a material negative effect on luxury demand’, warned chief executive Marco Gobbetti in an entirely predictable profit warning. Reliant on conspicuous consumption among the Middle Kingdom’s rising consumer classes, luxury stocks were the first cohort to sell off when the virus broke.
Despite this setback Gobbetti, whose strategy of enhancing margins by taking the brand further upmarket had been working, insisted Burberry will push on with its key growth initiatives in preparation for a recovery in luxury demand.
PULLING DOWN THE SHUTTERS
Burberry conceded its most recent guidance for the year ended March 2020 predates the coronavirus outbreak, and warned the actions it is taking to mitigate the impact will have a limited benefit in the current financial year. Effectively, those forecasts have gone out of the window.
The trench coats-to-handbags seller said 24 of its 64 stores in mainland China are currently closed, while the remaining stores are operating with reduced hours and seeing ‘significant’ footfall declines and dwindling sales.
READ MORE ABOUT BURBERRY HERE
According to the FTSE 100 fashion house, famed for its Burberry Check, Equestrian Knight Device and social media savvy, the spending patterns of Chinese customers in Europe and other tourist destinations have been less impacted to date. However, Burberry expects these spending patterns to worsen over the coming weeks amid widening travel restrictions.
‘While we cannot currently predict how long this situation will last, we remain confident in our strategy,’ insisted Gobbetti. ‘In the meantime, we are taking mitigating actions and every precaution to help ensure the safety and wellbeing of our employees.’
THE EXPERT’S VIEW
Russ Mould, investment director at AJ Bell, commented: ‘Burberry has confirmed what the market has been speculating for weeks – that the coronavirus is having a negative impact on luxury goods demand in China.
‘Its share price has fallen by 10% this year as it seemed highly likely that the reduction in people freely moving around China, and the shift in people’s focus to worrying about their health rather than thinking about shopping, would impact Burberry’s earnings. Asia is very important for sales of its products.
‘Burberry is right to have withdrawn its earnings guidance given so much uncertainty on sales,’ continued Mould, while also flagging up the growing list of companies that has done the same thing, among them coffee house colossus Starbucks and Japanese gaming consoles name Nintendo.'