Burberry Sales Rise Less Than Expected in First Half

How Badly Is China Slowdown Hurting Burberry?
  • Luxury-goods maker's sales rose at slowest pace in three years
  • Burberry expects mid-single digit sales growth in second half

Luxury-goods maker Burberry Group Plc indicated full-year profit will probably decline for the second straight year as a drop in Asian sales led first-half revenue to miss analysts’ estimates.

Adjusted pretax profit will be “broadly in line” with an average of analyst estimates of 445 million pounds ($689 million) in the year through March, London-based Burberry said Thursday in a statement. Earnings on that basis reached 455.8 million pounds last year. Second-quarter retail sales climbed 1 percent on a comparable basis, the slowest pace in three years. The shares fell as much as 12 percent.

Luxury-goods makers are struggling on multiple fronts. Sales have cooled in China following a clampdown on extravagance. Demand has slumped in Hong Kong and Macau as wealthy Chinese shop in Japan and Europe instead. And the devaluation of the yuan and the Federal Reserve’s decision to hold off from raising interest rates have added to concerns about growth, with LVMH Moet Hennessy Louis Vuitton SE this week attributing slowing fashion and leather-goods sales to stock market volatility.

“While we do not question Burberry’s brand equity, strategy or execution, the trading environment is tough and only amplified by its geography mix,” said Ashley Wallace, an analyst at Bank of America Merrill Lynch. She lowered her recommendation on the stock to neutral from buy.

Burberry is in a weaker position than most. The maker of 45-pound scents and 1,995-pound shearling trenchcoats gets more than 30 percent of revenue from Chinese consumers, yet only 2 percent from Japan, where many of those shoppers are purchasing. And the U.K. accounts for about 40 percent of European retail sales when many shoppers with dollars in their wallets are taking advantage of a weaker euro, according to MainFirst Bank AG.

Six-month revenue was little changed at 1.11 billion pounds, Burberry said. Analysts predicted 1.16 billion pounds, based on the average of estimates compiled by Bloomberg.

Burberry said demand in the U.S. was uneven and Asia Pacific sales had a mid-single digit decline, with Hong Kong decelerating further in the second quarter.

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