Burberry Warns On Future Profits As Sales Dip

Luxury fashion group Burberry said it was hit by a fall in Chinese spending in Hong Kong and Europe as it reported a 5% fall in comparable sales for the fourth quarter and warned on profits for the year ahead.

Chief executive Christopher Bailey said the UK-based company was focusing on cost-cutting and efficiency as it faced a "challenging" environment. Shares (Berlin: DI6.BE - news) fell 8% when the FTSE 100 opened but they recovered more than half that loss by the close.

Burberry reported a 1% fall in revenue to £1.41bn for its second half, the six months to the end of March. It (Other OTC: ITGL - news) followed a flat performance in the first half.

Comparable sales were flat in the third quarter but fell by 5% in the fourth, meaning they were down by 2% overall for the second half.

Burberry said it would have seen a 1% rise for the half but for the impact of Hong Kong and Macau. Hong Kong saw sales fall by more than 20% for three successive quarters.

However, growth continued in mainland China, Korea and Japan.

It comes as the Chinese economy faces a growth slowdown that has prompted global market turbulence in recent months.

Meanwhile the group said that in Europe sales to the "travelling luxury customer, particularly the Chinese" fell year-on-year.

It added that the UK and Middle East "remained difficult throughout the half".

Burberry publishes full-year results for 2015/16 next month. It expects adjusted pre-tax profits to be broadly in line with analysts' expectations, which range from £401m to £443m. It will also set out details of its "productivity and efficiency" agenda.

But it said that excluding any benefits from these changes, it expects to see adjusted pre-tax profits for the full year to 2017 around the bottom range of analysts' expectations.

Mr Bailey said: "In an external environment that remains challenging for luxury, we continue to focus on reducing discretionary costs and are making good progress with developing enhanced future productivity and efficiency plans.

"Meanwhile, brand momentum is strong, digital continued to outperform in the half and innovation in new products is resonating well with our customers (Other OTC: UBGXF - news) ."