FTSE 100: Burberry retains luxury charm despite decline in China

A Burberry store is seen in London, Britain, January 16, 2023.  REUTERS/Peter Nicholls
Burberry sales outside China grew well. Photo: Peter Nicholls/Reuters

British fashion brand Burberry has announced that its retail sales grew by 4.6% in the 13 weeks to December 2022.

However, the famous brand was also hit by the significant lockdown disruption in China with sales in the Chinese market falling by 23%.

The slowdown in China resulted in Burberry's like-for-like sales growth slowing sharply to 1% in the quarter to the end of December 2022.

Comparable sales growth outside of China was 11% for the period, but the Covid-19-related disruption in mainland China offset the strong performance in Europe, Middle East, India and Africa.

Burberry (BRBY.L) sales also grew in Japan, South Korea and South Asia Pacific, showing double-digit growth, with comparable sales climbing 28%, 10% and 15% respectively.

Chief executive Jonathan Akeroyd said Burberry remains confident in its ability to reach its medium-term targets, despite the current macro-economic environment.

Shares in the UK’s blue-chip luxury retailer have rallied in recent months, with Burberry stock quoted at 2,274p as of the time of writing, a rise of 1.38% in the past 24 hours.

Charlie Huggins, head of equities at Wealth Club, commented on the dissimilarity between Burberry sales in China and the rest of the world.

He said: “Covid-19 related disruptions have impacted Burberry's performance in China this quarter, with sales falling by 23%. But elsewhere, performance is more encouraging. As pandemic restrictions in China ease, sales should improve.

"Looking to the medium to longer term, Burberry's success will hinge on the success of new chief executive, Jonathan Akeroyd's strategy to turn around the struggling luxury fashion house.

"The group’s performance has been disappointing for many years. Growth and margins have significantly lagged that of European rivals, and operational execution has often left a lot to be desired.

"It's not going to be a quick or easy fix. Elevating a luxury brand like Burberry and creating new products that resonate with consumers takes time, and there are no silver bullets. One thing's for sure – Burberry's operational execution will have to improve if it is to close the gap on its European rivals.”

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Richard Hunter, head of markets at interactive investor, also commented on the latest earnings report from the British fashion brand.

He said: “Despite an awkward economic backdrop, Burberry has ploughed on with the innovative campaigns which are making the brand increasingly relevant to a new generation of customers.

"In some ways, the higher end nature of the group’s products are aimed at customers who to a large extent are largely shielded from inflationary or even recessionary concerns. In addition, the strength of the US dollar has not only attracted more tourist spending in Europe from Americans, but has the added advantage of boosting earnings which become more valuable when repatriated.

"Indeed, Burberry has estimated a currency tailwind of £160m to revenues for the full-year, and a £70m boost to adjusted operating profit. Comparable sales in the European region grew by 19% in the quarter and for the group as a whole, excluding Mainland China, by 11%.

"The relaxation of the zero tolerance Covid-19 policy in China has yet to wash through to the numbers, and this could be an area in which Burberry gains significant advantage."

Watch: China: COVID-19 will bring ‘pretty considerable disruptions in the economy,’ strategist says