Burberry blames collapse in Hong Kong, Macau for ‘challenging demand environment’

Pedestrians and shoppers walk past a Burberry Group Plc store on Canton Road, Hong Kong

Burberry has warned of a “challenging demand environment” after a tough year in which the luxury British retailer has struggled to recover from a sales collapse in Hong Kong and Macau, FastFT reported yesterday.
The high-end fashion brand said full year profits before tax are likely to be at the bottom of analysts’ expectations this financial year, after comparable revenues fell 5 per cent in the fourth quarter – far short of consensus expectations of a 1.4 per cent decline.
In the six months to March 31, group revenue fell 1 per cent, compared with a 9 per cent increase over the same period last year.
Chief executive Christopher Bailey said: “In an external environment that remains challenging for luxury, we continue to focus on reducing discretionary costs and are making good progress with developing enhanced future productivity and efficiency plans. Meanwhile, brand momentum is strong, digital continued to outperform in the half and innovation in new products is resonating well with our customers.”
Burberry, FastFT said, is more reliant than other luxury goods groups on Chinese buyers, who for a time, flocked to Hong Kong in search of status design brands.
But sales in Hong Kong turned after pro-democracy protests in late 2014, which added to fears over a deeper than expected economic slowdown in China. More broadly, sales in the territory and on the mainland have taken a hit as Beijing cracked down on corruption, hurting demand for flashy fashion.
Hong Kong and China together account for 35 per cent of Burberry’s retail revenues.
According to the World Travel & Tourism Council, tourism revenues in Macau fell 32 per cent in 2015 and by more than 8 per cent in Hong Kong.
According to the FT, Bailey has stepped up cost-cutting initiatives to boost performance, including in China itself — which returned to growth at the end of last year.
However, the Financial Times reported that “some shareholders have criticised the company for combining the chief executive and creative director roles under the 44-year-old Mr Bailey.”
A profits warning by Hugo Boss earlier this year, which was triggered by falling Chinese spending and led to the resignation of chief executive Claus-Dietrich Lahrs, was initially read by investors as bad news for other luxury brands — including Burberry.
Investors in luxury stocks were further spooked this week when LVMH reported that sales in France had been affected by a drop in tourism following terrorist attacks in Paris and Brussels.
Although Burberry’s shares have lost almost 25 per cent over the last 12 months, they are up 19 per cent since its third quarter results in mid-January – FastFT said.