Burberry shares plunged around 11 percent after a sharp slowdown in China and Hong Kong led Burberry to miss forecasts for first-half sales growth and warn of an increasingly challenging environment for luxury sales.
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The shares have lost almost a quarter of their value of the year, weighed down by the economic slowdown in China, one of its biggest markets.
Demand for luxury goods in the world’s second largest economy has tailed off due to the Shanghai stock market rout over the summer and this has directly affected the British fashion house which has pinned so much its strategy on selling to the nouveaux riches in Asia.
‘Note shares trading below even the most bearish broker target of £13, suggesting analyst models at both ends of the spectrum likely require a few considerable updating’.
Turnover flatlined at £1.105 billion ($1.704 billion, 1.485 billion euros) in the six months to September compared with £1.1 billion a year earlier, said Burberry, which is famous for its trench coats and signature accessories.
Burberry is in a weaker position than most.
“Retail revenue growth in second quarter was “impacted by [an] increasingly challenging environment for luxury, particularly Chinese customers”, Burberry said in a statement”. The company today vowed to take “accelerated actions” to minimise the impact on the group’s full-year profits.
Bailey says Burberry is working to boost sales and productivity, while cutting discretionary costs.
The firm saw a mid single-digit percentage decline in comparable store sales in the Asia Pacific region, which includes Hong Kong and China. Looking further ahead, we maintain our focus on – and confidence in – the long-term growth opportunities for our business across channels, regions and product categories’.
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The company said it expects full-year adjusted pretax profit will be “broadly in line” with an average of analyst forecasts of 445 million pounds.
