British luxury brand Burberry’s (BRBY) overall retail sales slipped back 2% to £719m for the third quarter (Q3). The three month period to 31 December, which obviously includes Christmas trading, missed consensus expectations of £739m.

A sharp year-on-year decline in UK sales and a slowdown in China conspire to send shares in the high-end bags, cashmere scarves and trench coats seller 7.6% lower to £16.50 on Wednesday.

Q3 MISS

Burberry’s retail like-for-like sales edged up 2% in Q3, but this is south of the 3% growth that investment bank UBS was looking for and disappointing in comparison to the growth being posted by luxury peers, Hugo Boss among them.

Within the EMEIA (Europe, Middle East, India and Africa) region, Burberry’s sales slid by ‘a low single digit percentage’ with UK sales slipping by a high single digit percentage.

This reflects the annualisation of the blistering 40% growth generated in Q3 of 2016, the post-referendum period when tourists were flocking to the UK to take advantage of the weak pound.

Milan, Italy  - December 22, 2014: Christmas Decorations on Burberry window display, Milan

Asia Pacific grew by a mid-single digit percentage, as did mainland China, yet this also represents a slowdown in a key market for high-end heritage British wares.

The market also gives the thumbs down to the low single digit percentage growth eked out in the Americas, US sales ‘broadly flat’ amid footfall declines and subdued tourist spending.

GUIDANCE UNCHANGED

Reassuringly however London-based Burberry, famed for its equestrian knight logo and Burberry check trademarks, leaves full year 2018 operating profit guidance unchanged, with consensus pitched at £464m.

‘We are making good progress embedding our strategic vision into the organisation and remain on track to meet our full year profit target,’ says new CEO Marco Gobbetti, seeking to reposition Burberry as one of the world’s most aspirational brands.

’We are building on strong foundations and are fully focussed on the successful delivery of our multi-year plan to position Burberry firmly in luxury and deliver long-term sustainable value,’ he continues.

Gobbetti expects his charge to remain strongly cash generative and see margin improvements while delivering £60m of cost savings in the current year to March 2018.

Burberry - JAN 2018

 

CHANGE OF TACK

In November, Burberry’s shares came under heavy selling pressure after Gobbetti set out a plan to push the brand into the upper echelons of the luxury sector where margins are highest and returns more reliable.

Yet Gobbetti warned there would be little, if any, growth in revenue and operating profit until Burberry’s 2021 financial year as it implements the strategy.

Following today’s update, UBS forecasts flat EBIT of £459m for the year to March 2018, translating into earnings of 80.5p per share (2017: 77.4p) and a 40p dividend (2017: 38.9p). For March 2019, UBS’ estimates point to a weakening in EBIT to £453m for earnings of 82.7p and a 40.8p dividend.


Issue Date: 17 Jan 2018