Daily Management Review

Despite China Slowdown Burberry Reports Surprise Rise in Profits


Despite China Slowdown Burberry Reports Surprise Rise in Profits
Helped by the company's cost-cutting drive helped to offset a slowdown in Chinese spending, a surprise increase in first half profits was reported by Burberry.  
In the six months to the end of September compared with the same period last year, the luxury retailer said adjusted pre-tax profits rose by 3 percent to £152.9 million.  There were expectations that earnings would dip to £144 million only.
Sales were broadly flat at £1.1 billion over the period.
The company's decision to cut costs by streamlining its operations, cutting travel costs and reducing bonuses had helped to boost profits, said Christopher Bailey, Burberry's chief executive.
The shares rose by as much as 2.5pc to 1,368p in early trading.
However, Mr Bailey warned that the outlook remained "challenging".
"This robust performance reflects decisive action as the external environment became more challenging in key markets over the period. We enter the second half mindful of this backdrop, but confident in our strongest-ever festive plans and emphasis on productivity and efficiency," he said.
The company said nearly 11 million views, double of its last year’s figures, were made of Burberry’s latest Christmas advert, which features Romeo Beckham, Elton John, Julie Walters and models including Naomi Campbell.
Fears over faltering Chinese growth and the impact it is having on consumer spending had taken a toll on the share prices of Burberry in recent times when the prices have fallen by almost a third from a high in February.
Sales in China "softened in the second quarter", the company said. While announcing that the company would continue to "intensify" its expansion efforts in the region, it also clarified the move by many Chinese consumers to travell to Japan to take advantage of the weak yen as one o fthe primary reasons for the softening of sales in China.
The slowdown of the sale in China has been attempted to be countered with a push on personalised social media campaigns and pop-up stores even as the company was reducing space in its flagship Hong Kong store, said Carol Fairweather, Burberry finance chief. While the group was in a number of lease negotiations to push for lower rents in China, Fairweather added that all of Burberry’s China stores remained profitable.
Burberry was not part of the discounted sales on China’s Single Day yesterday even though the total volume of purchase was to the tune of 91.2bn yuan (£9.4bn) in 24 hours. The company refrained from participating in discounted events, said the Burberry finance chief.
"In an evolving luxury environment, we see compelling opportunities by channel, region and product, underpinned by the strength and distinctiveness of our authentic British brand," added Mr Bailey.
The strength of the pound against the euro was slighted out to be the primary reason for the muted growth of the company in the UK. United Kingdom represents more than a third of the company’s retail revenues.
The Prorsum, London and Brit labels would be phased out by the end of next year and all goods would be sold under one Burberry label, Mr Bailey has announced.