Burberry sales fall as COVID forces store closures, but strong Asia growth buoys investors

Burberry sales fall as COVID forces store closures, but strong Asia growth buoys investors

Burberry reported a worse-than-expected 9% decline in same-store sales during the third quarter as lockdowns forced store closures, and it warned that the spread of new strains of coronavirus could lead to further disruptions.

The British luxury goods group said on Wednesday that 15% of its stores worldwide remain closed, and more than a third are open with reduced hours or operating with restrictions and “an uncertain trajectory given the spread of the more transmissible new variants of COVID-19.”

“Given this outlook, we expect trading will remain susceptible to regional disruptions as we close the financial year,” the company said in a trading update.

However, Burberry

Chief Executive Marco Gobbetti struck a positive note, saying that, while the short-term outlook remains uncertain due to COVID-19, the group was “well placed to accelerate when the pandemic eases.”

“Despite the challenging external environment, we made good progress on our strategic priorities in the quarter. We saw a strong increase in full-price sales as our collections and communication resonated well with new, younger clientele as well as existing customers,” Gobbetti said.

Shares in Burberry, which are down 24% over the last 12 months compared with a drop of 12% for the wider FTSE 100, rose 4.72% in early morning trading on Wednesday.

Retail revenue fell 4.3% year-over-year to £688 million during the 13 weeks to Dec. 26, 2020, from £719 million a year earlier. Comparable-store sales fell 9%, following growth of 3% a year earlier.

By region, sales growth was strongest in Asia-Pacific, where comparable-store sales rose 11% during the period with “strong double-digit growth,” in mainland China.

Read: China’s ‘unstoppable’ global luxury-market share nearly doubles amid pandemic

Revenue in the Americas fell 8%, and 37% in Europe and the Middle East, as tourists continued to stay away amid extended travel bans aimed at curbing the spread of new coronavirus mutations, such as those identified in the U.K. and Brazil.

Richard Hunter, head of markets at Interactive Investor, said that Burberry “remains stifled yet defiant” in the face of the COVID-19 pandemic.

“On the one hand, Burberry’s wealthy customers should in theory be less affected by economic turmoil and the strength of full-price sales in the period provides some evidence for this. However, shopping for its products is seen as many as a physical experience, and so the widespread closure of stores and a tourist market which has all but disappeared for the moment is a bitter pill to swallow,” Hunter wrote in a research note to clients on Wednesday.

Read: Burberry Sales Return to Growth but the Luxury-Goods Recovery May Stall

Burberry, like its peers, has embraced new digital tools such as live streaming for product presentation during the pandemic, which Gobbetti said had helped drive the group’s growth in rebounding markets.

Online full-price sales growth rose more than 50% during the period, with mainland China in triple digits.

“Digital full-price sales growth of 50%, while not sufficient to arrest an overall decline, is nonetheless proof of a successful strategic shift,” Hunter noted.

Burberry also said that it was “looking at ways to mitigate” the impact of the U.K.’s government’s decision to scrap the value-added tax retail export program because of Brexit, which had allowed VAT refunds for non-European Union tourists.

“The scheme made the U.K. a popular destination for retail tourists from the Middle East and Asia alike, and these shoppers made up a significant chunk of revenues,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

“The question now is whether these sales will be recouped in other regions,” she added.

Source link


Please enter your comment!
Please enter your name here