British luxury goods giant Burberry’s (BRBY) share price sheds the best part of 6% to £16 as investors are spooked by a slowdown in fourth quarter comparable sales.

This quarterly sales miss highlights the scale of the task facing luxury goods veteran and incoming CEO Mario Gobbetti in reinvigorating the high-end bags, trench coats and cashmere scarves seller’s stagnating sales.

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SLOWING SALES

Click here to read today’s second half trading update from Burberry, famed for its equestrian knight logo and Burberry check trademarks, covering the six months to 31 March.

The key takeaway is a moderation in the core retail division’s comparable sales growth rate from 3% in the third quarter to a mere 2% in the final quarter.

NUMEROUS HEADWINDS

We admire Burberry’s fabulous brand, which confers pricing power and underpins high margins and robust cash flow generation, although we concede the business is facing a number of headwinds.

While it reports strong trading in mainland China, poor performances were encountered in Hong Kong and Korea.

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Encouragingly, the luxury leader heralds an ‘exceptional performance in the UK’, boosted by tourists taking advantage of the weak pound to splash out on luxury items in London.

However, dollar strength is constraining domestic sales in the US, where the market has turned highly promotional.

Burberry is avoiding those American stores that have steep markdowns in order to protect its luxury image, while dollar strength is also encouraging well-heeled Americans to spending abroad.

Besides the retail growth slowdown in the final quarter, declines in both the wholesale and licensing businesses are giving investors pause for thought.

Burberry - APRIL 2017‘In an uncertain environment, we continue to take action to strengthen the brand and reposition Burberry for growth,’ says chief creative and executive officer Christopher Bailey, whom Gobbetti succeeds as CEO in July.

‘The outperformance of fashion and the strong customer response to new products underline our renewed creative momentum.'

Burberry has at least reiterated full year profit guidance, helped by a boost from the weak pound.

The company also insists it is on track to deliver £20m of cost savings in the year to March just-ended, ‘increasing to at least £100m annualised in full year 2019’, and has returned £100m of a planned £150m in share buybacks in a bid to be more shareholder friendly.


Issue Date: 19 Apr 2017