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Burberry’s Sales to Chinese Ease Concern of Fading Luxury

Burberry Revenue Beats Estimates
A security guard stands on duty near a display of ladies handbags inside a Burberry fashion store, operated by Burberry Group Plc, in London. Photographer: Simon Dawson/Bloomberg

Burberry Group Plc reported first-quarter revenue that exceeded estimates as strong sales to Chinese shoppers eased concern of fading luxury demand and sent the shares up the most in six months.

Retail revenue rose 9 percent to 370 million pounds ($635 million) in the three months through June, London-based Burberry said today in a statement. Analysts predicted 354 million pounds, according to the median of 15 estimates. The shares climbed as much as 5.7 percent, the most since Jan. 15.

Chinese tourist transactions in Europe increased in the period, helping cushion softer local and Russian demand in the region, where sales grew by a low single-digit percentage, Burberry Chief Financial Officer Carol Fairweather said on a call with reporters. The U.K.’s largest luxury-goods maker said Asia-Pacific sales rose by a double-digit percentage.

Burberry’s growth in Asia is “a positive for the sector,” Luca Solca, an analyst at Exane BNP Paribas, said via e-mail. While the increase may be boosted by store investments in China, the performance eases concern about “muted Chinese discretionary demand and difficult trading in Hong Kong.”

The shares traded 2.5 percent higher at 1,454 pence at 9:13 a.m. in London.

$30 Lipstick

Initiatives such as click-and-collect, which allows shoppers to order products online and pick them up in stores, have helped Burberry outperform its peers even as the pound’s strength weighs on growth and demand softens in Europe. The maker of $30 lipstick and $995 trenchcoats is the first major European luxury company to report sales for the quarter.

“Digital engagement with the Chinese consumer, however we touch them, is really important and our point of differentiation,” Fairweather said on the call. The U.K. consumer also performed “very nicely” in the quarter, she said.

“We remain confident of delivering sustainable, profitable growth into the future,” Christopher Bailey, Burberry creative head and chief executive officer, said in the statement.

The company said if exchange rates remain at current levels, that would reduce annual retail and wholesale profit by about 55 million pounds and trim the adjusted operating margin to about 16 percent. The company forecast a reduction of 40 million pounds and margin of 16.3 percent in May.

Bailey, who added the CEO’s role in May, faces investor opposition to his proposed 10.3 million-pound pay package, plus stock awards. The Investment Management Association has issued its second-most serious alert on Burberry’s pay policies ahead of tomorrow’s annual general meeting, an IMA spokeswoman said.

Total comparable sales increased 12 percent, Burberry said, matching the previous quarter’s gain.

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