Daily Management Review

Disruption In China Causes Stagnation Of Burberry's Recovery


Disruption In China Causes Stagnation Of Burberry's Recovery
Inclement weather and restrictions on travel in China because of Covid-19 resulted in stagnation of sales of Burberry in the second quarter, which seem dot downplay the profits reported by the company for the quarter which was better than expected.
After reporting stagnant like-for-like shop sales revenue for the second quarter compared to the same period two years ago prior to the pandemic, the company's share price tumbled by as much as 10 per cent in early Thursday trading, as it give up gains that it had achieved since mid-October. The stocks eventually recovered some of their losses, trading at 1,862.5 pence, down 5 per cent.
Following a drop in footfall at the company’s stores in China in August, the metric recovered in September, while the figure in October was in line with expectations, according to the company’s Chief Financial Officer Julie Brown.
Burberry's largest market is China, and growth in that market, as well as in South Korea and the United States, propelled revenue back to pre-pandemic levels in the first half of the financial year.
Concerns about China's economic strength have hurt the luxury industry, as has President Xi Jinping's attempt to divide wealth, dubbed "common prosperity."
Brown, on the other hand, noted that aside from the August setback, Burberry had noticed no signs of a reduction in demand.
"Our market tends to be the upper middle class and we are actually finding that momentum has continued," she said.
Due to low tourism, trading in Burberry's home market and at other markets in Europe "remained difficult,” according to Brown, with the revenues for the first half of the year down by 31 per cent compared to the same period two years ago.
 It is likely that personal luxury goods sales in Europe will not recover to pre-pandemic levels until 2024, according to consulting firm Bain on Thursday, despite worldwide luxury goods sales being expected to outperform pre-pandemic levels this year, because of domestic spending in the United States and China.
Burberry announced revenue of 1.21 billion pounds ($1.64 billion) for the six months ended September 25, up 45 per cent at constant exchange rates. Burberry had recently hired Versace chief Jonathan Akeroyd as its new CEO.
The adjusted operating profit was 196 million pounds, over four times what it was a year earlier and well beyond forecasts.
Burberry Chairman Gerry Murphy expressed confidence in the company's ability to meet its medium-term targets of high single-digit top-line growth and improved margins.
Full-price sales in the Americas then doubled, while South Korea climbed over 80%, and mainland China gained over 40%, according to the firm, which is famed for its camel, black, and red check and new "TB" monogram.
Burberry will welcome Akeroyd in April, following Marco Gobbetti, who announced his resignation in June, midway through a multi-year plan to move the company upmarket.