China Lockdowns Dent Burberry’s Q1 Growth, as Europe Bounces Back

·5 min read

LONDON – Lockdowns in Mainland China dented Burberry’s growth in the fiscal first quarter which saw retail revenue increase 5.4 percent to 505 million pounds. At constant exchange, retail revenue was flat in the 13 weeks to July 2.

Burberry said that comparable store sales advanced one percent in the three months, with EMEIA the most dynamic region. Comparable store sales grew 47 percent in the region during the period, with demand from local clients strong, and above pre-pandemic levels. Sales to American tourists in the region also rebounded, Burberry said.

More from WWD

The British brand added that its more “localized approach” drove an increase in spending by clients in their home markets to above pre-pandemic levels.

“This approach, together with increased tourist spend from the Americas has helped to mostly offset lower sales to Asian, and especially Chinese, tourists. Our focus categories, leather goods and outerwear, continued to perform well outside of Mainland China,” the company said.

Burberry added that its new product launches and seasonal collections performed strongly. Leather goods comparable sales grew 21 percent outside of Mainland China, led by the Lola handbag range. The TB family also performed well, supported by the Frances shape from the same family. Outerwear comparable sales advanced 19 percent outside of Mainland China, driven by rainwear and jackets.

It wasn’t enough to boost the shares, which were down 6.1 percent to 15.48 pounds in mid-morning trading on the London Stock Exchange. The shares closed down 3.3 percent to 15.95 pounds on Friday, July 15.

Jonathan Akeroyd, who joined Burberry as chief executive officer earlier this year, said the quarterly performance “continued to be impacted by lockdowns in Mainland China, but I was pleased to see our more localized approach drive recovery in EMEIA, where spending by local clients was above pre-pandemic levels.

“Our focus categories, leather goods and outerwear continued to perform well outside of Mainland China and our program of brand activations boosted customer engagement. While the current macro-economic environment creates some near-term uncertainty, we are confident we can build on our platform for growth,” he said.

Looking ahead, Burberry said that its performance in Mainland China has been encouraging since its stores reopened in June and it is “actively managing” the headwind from inflation. The company said it continues to target high-single digit revenue growth and 20 percent margins, at constant exchange rates, in the medium term.

Burberry said it is expecting a currency tail wind of around 190 million pounds on revenue and approximately 90 million adjusted operating profit in the fiscal 2022-23 year.

While China may have dented first-quarter growth, Burberry said it saw a “strong recovery” outside of Mainland China, with comparable store sales in the Asia-Pacific region up 16 percent in the first quarter. That growth was offset by a 35 percent decline in Mainland China due to the restrictions and store closures the country put in place to control COVID-19 outbreaks.

Overall, comparable store sales advanced one percent in the period with a significantly different performance in each region. The one percent growth beat consensus expectations of a two percent decline in comparable store sales.

Sales in Asia-Pacific fell 16 percent overall, with Mainland China down 35 percent. As reported, Burberry started the quarter with around 40 percent of its distribution disrupted by lockdowns in Mainland China, including its digital hub. Disruption continued for the first two months of the fiscal year, but all stores were fully reopened by the end of the period.

Declines in Mainland China were offset by strong performances in the recovering markets of Japan and other countries in the region. The Americas decreased 4 percent, “slowing against very tough comparatives. We saw good growth in outerwear with bags also outperforming,” Burberry said.

As reported earlier this month, Burberry shut its flagship store in Hong Kong’s Canton Road, one of the world’s most expensive shopping streets, the brand confirmed Friday.

This is the second major store that the British brand shuttered since the COVID-19 pandemic. The brand first closed its flagship in Causeway Bay last year.

The brand’s 5,500-square-foot store on Canton Road, Tsim Sha Tsui, was opened in 2011. At the time, the area where the shopping mall Harbor City is located was one of the most popular shopping destinations for mainland China tourists after cross-border travel was opened to the majority of Chinese citizens.

Since the introduction of broader controls between mainland China and Hong Kong in early 2020, in addition to waves of social unrest before that, luxury retail in Hong Kong has taken a big hit.

Analysts noted that Burberry beat consensus expectations for comparable store sales: the markets had been expecting those sales to shrink by two percent in the quarter.

Royal Bank of Canada said there were “no real surprises in terms of regional development, with EMEIA the strongest region, Americas growth turning negative on tough [comparative] base, and APAC impacted by China, in similar magnitude as Richemont,” which also reported its first-quarter results on Friday, July 15.

RBC said the performance was in line with estimates although “absolute growth rates for Burberry versus the luxury sector remain low, and we struggle to see how it will transition towards high single digit growth mid-term outlook.”

Barclays described the Q1 update as “good,” and said the results should be well received by the market.

Bernstein’s Luca Solca noted that, overall there continues to be “outsized, high-end demand in the luxury end of the market as consumers of all nationalities emerge from the pandemic in a YOLO [seize the moment] mood. This has yet to normalize.”

Sign up for WWD's Newsletter. For the latest news, follow us on Twitter, Facebook, and Instagram.

Click here to read the full article.