Iconic fashion brand Burberry (BRBY) forecasts an additional £20m uplift in profits thanks to the continuing plunge in the pound in today's first half trading update and insists its ambitious sales growth and productivity plans are 'well underway'.

Yet shares in the trench coats-to-cashmere scarves purveyor trade 8.6% lower at £13.82, the catalyst being the cautious tenor of the outlook statement. Burberry not only warns of 'continued uneven demand in the Americas', but also concedes Hong Kong and Macau continue to constrain growth in Asia Pacific and major markets in Continental Europe remain weak.

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Famed for its iconic equestrian knight logo and Burberry check trademarks as well as its signature trench coats, the luxury leader also reports a 4% underlying drop in total sales to £1,159m, the impact of restructuring the wholesale and licensing business offsetting retail growth. There's also guidance towards a further steep decline in wholesale revenue in the second half for bears to focus on.

Nevertheless, there are a number of positives in the update from Burberry, whose shares have rebounded by 25% since the vote to leave the European Union (23 June).

Naomi Campbell in the Burberry Festive Campaign shot by Mario Testino

Half year retail sales rose 11% with weaker sterling accounted for. The plunging pound also drove a return to positive like-for-like retail growth in the second quarter. The improved performance from the travelling luxury shopper was most keenly felt in the UK, where comparable sales shot up over 30% thanks to sterling depreciation.

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Christopher Bailey, Chief Creative and Chief Executive Officer (CEO) for the time being, comments: 'In a challenging external environment, we continue to focus on product innovation, retail productivity and digital leadership, against a backdrop of sustained action and investment to deliver long-term outperformance of our brand and business.'

While market conditions remain testing, as Shares outlined here, Burberry does have a balance sheet robust enough to withstand luxury storms, while the arrival of new CEO Marco Gobbetti next year should inject fresh impetus and potentially, new ideas to drive growth.


Issue Date: 18 Oct 2016