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Burberry Hong Kong will ride out downturn

Burberry Hong Kong stores will continue to trade as they are with no short-term plans to close any stores, despite a “double-digit” same-store sales decline over the last quarter.

The UK-headquartered luxury apparel brand reported a disappointing half-year profit overnight, with operating profit down 5 per cent on revenue up 5 per cent. A one-off charge of £26.1 million from the write-down of its struggling beauty business hammered year-on-year comparisons.

CFO Carol Fairweather told a media conference call Burberry has “no near-term plans to close stores” in Hong Kong.

But while Hong Kong continued to struggle, Burberry Asia showed significant improvement, sales down in the “low single digits”. It appears Mainland Chinese consumers are buying the brand’s products at home, rather than in Hong Kong. Efforts to attract locals into Hong Kong stores have so far failed to pay off.

Nivindya Sharma, senior analyst with Verdict Retail, says brand’s story remains broadly the same, with wholesale and licensing continuing to drag down total revenue growth.  

Beyond Asia, first-half year retail revenue was boosted by a 30 per cent uplift in second quarter UK like-for-like sales as shoppers rushed to take advantage of the weaker pound helping the EMEIA region to grow 10 per cent.

“However, the Americas remain a particular bugbear for the luxury player, as the continuing struggle of department stores in the region and their resultant tighter inventory controls hurt Burberry’s wholesale revenue, while a volatile political environment dampens domestic customer demand further in the second half, affecting retail division revenue,” says Sharma.

Burberry expects the second half year to be broadly the same as the first half and has kept its profit guidance for the full-year unchanged – licensing will be the main drag on growth due to the expiry of a number of Japanese licenses, while net new space is expected to contribute low single-digit percentage growth to the full year overall.

“The environment for luxury brands will remain challenging over the remainder of 2016 and into 2017 as consumer confidence remain shaky across markets affecting disposable incomes, and new CEO Marco Gobetti will have quite the task at hand when he takes over in early 2017, to ensure Burberry weathers the storms ahead,” predicts Sharma.

“However, the luxury brand has many aces up its sleeve especially in terms of product innovation and customer experience. Its first see-now buy-now collection launched in stores in September and will help the retailer tap into customer demand for fresh-off-the-runway clothing that can be worn straightaway, while the recent revamp of to make it more customer-responsive, will improve conversion levels and customer satisfaction.”

The company will also likely be focusing on restoring its ailing beauty business. Four years ago it bought back its beauty and fragrances licenses, saying there were significant opportunities in the space. Underlying first-half sales falling 17 per cent.

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