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Burberry's rebound stalls after disruption in China

·2-min read

By Paul Sandle

LONDON (Reuters) - Burberry's sales flatlined in the second quarter due to bad weather and COVID-19 travel restrictions in China, taking the shine off the fashion brand's better than expected profit.

Shares in the company fell as much as 10% in early Thursday trading, giving up the gains they have made since mid-October after it reported flat like-for-like second-quarter store sales compared to two years ago, before the pandemic struck.

They later pared some of their losses to trade down 5% at 1,862.5 pence.

Chief Financial Officer Julie Brown said footfall in China dropped in August but it recovered in September and October was in line with expectations.

China is Burberry's biggest market, and growth in the country, along with South Korea and the United States drove its revenue to pre-pandemic levels in the first half of its financial year.

Worries about the strength of China's economy and an initiative to redistribute wealth, named "common prosperity" by President Xi Jinping, have hit the luxury sector.

Brown, however, said Burberry had seen no sign of a drop in demand, aside from the disruption seen in August.

"Our market tends to be the upper middle class and we are actually finding that momentum has continued," she said.

Trading in Burberry's home market and elsewhere in Europe "remained difficult" due to low tourism, Brown said, with first-half sales down 31% from two years ago.

Sales of personal luxury goods may not return to pre-COVID levels in Europe until 2024, consultancy Bain said on Thursday, although it expects global luxury goods sales to outpace pre-COVID levels this year, fuelled by domestic spending in the United States and China.

Burberry, which recently poached Versace boss Jonathan Akeroyd to be its new chief executive, reported revenue of 1.21 billion pounds ($1.64 billion) for the six months to Sept. 25, up 45% at constant exchange rates.

Adjusted operating profit came in at 196 million pounds, nearly four times the level achieved a year ago and beating expectations.

Chairman Gerry Murphy said Burberry remained confident of achieving its medium-term goals of high single-digit top line growth and margin improvement.

The company, known for its camel, black and red check and new "TB" monogram, said full-price sales almost doubled in the Americas, while South Korea grew almost 80%, and mainland China was up over 40%.

Akeroyd will join Burberry next April, succeeding Marco Gobbetti, who announced his departure in June, midway into a multi-year turnaround to take the brand further up-market.

($1 = 0.7389 pounds)

(Editing by William Schomberg, Kate Holton and Carmel Crimmins)

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