Burberry shares have taken a hit after the luxury fashion retailer admitted it will get far less benefit from foreign currency gains than it had anticipated only a few weeks ago.
Burberry had expected a £50m boost from favourable foreign exchange movements, but yesterday the label warned that boost would now be just £10m, as a result of currency movements including a rise in value of the pound against Hong Kong and US dollars.
“Underneath, the numbers read well and are ahead of forecasts and the company is doing a lot to make the business sustainable, but lowering 2016 guidance has hurt Burberry today, and luxury is always going to be a choppy sector, quick to react to changes in consumer confidence,” said Will Hedden, a dealer at London Capital Group.
Trenchcoats, monogrammed scarves and check blanket ponchos, all made in Britain, underpinned sales growth during the financial year ending 31 March. The company beat City forecasts with an 11% rise in revenues to £2.5bn and a 7% rise in pre-tax profit to £456m.
But investors took fright after a slowdown in Asia, and Burberry shares were the biggest fallers in the FTSE 100, plunging more than 6% to 1697p.
Pro-democracy protests in Hong Kong, one of Burberry’s most profitable markets, have damaged business in recent months. Tourism has fallen away in the territory, with fewer visitors from mainland China – who are typically big spenders.
The result was a mid-single-digit decline in Hong Kong spending during the second half of the year, the company said, accompanied by a slowdown in mainland China, but countered by a slight lift in Europe.
A weaker euro also increased grey market sales, with unauthorised traders buying luxury brands in Europe and selling them at a profit in China and other Asian markets. Burberry responded by raising prices in Europe and reducing them in Asia.
A decision to simplify the variety of trenchcoats on offer helped boost sales of the company’s classic British-made garment, along with Scottish-made scarves, which can now be monogrammed via online order for £75 on top of the £335 retail price.
Burberry’s finance chief, Carol Fairweather, said: “We’ve got this absolute focus on our heritage icons, there is a lot more to come from the scarves and poncho story as we move forward this year.”
The trenchcoat, made from fabric woven in Keighley in Yorkshire and sewn nearby in Castleford, now uses cotton grown on Burberry’s sustainably managed plantation in Peru.
International events with a British theme helped raise the brand’s profile, with London streets recreated in a Shanghai warehouse and James Corden, the Beckhams and the Queen’s Grenadier Guards starring at a one-off fashion show in Los Angeles in April.
And the company reasserted its digital credentials by using the brand new Periscope app to live stream the event. LINE, which has 52m Japanese users, broadcast its February womenswear show to a large Asian audience.
