Burberry earnings hit by ‘challenging environment’

China is a key market for Burberry's luxury fashion items. Picture: China Photos/Getty Images

China is a key market for Burberry's luxury fashion items. Picture: China Photos/Getty Images

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Luxury fashion group Burberry today said adjusted full-year profits dropped 10 per cent to £421 million as it flagged a challenging trading environment for its products.

Underlying revenues at the firm, famous for its trench coats and check scarves, fell 1 per cent to £2.5 billion for the year to 31 March.

Chief executive Christopher Bailey said: “While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to drive Burberry’s future outperformance, underpinned by strong brand and business fundamentals.”

Bailey said the group would slash “at least” £100 million in costs by 2019 to help offset difficult trading.

Burberry warned last month that fourth-quarter sales had been hit lower spending by Chinese tourists in continental Europe and a collapse in the Hong Kong luxury market.

The retailer makes around a third of its sales from the Asia Pacific region and has been hit hard as Chinese consumers have reined in their spending, particularly in Hong Kong, traditionally a prime shopping destination for Chinese consumers.

Bailey said: “We continue to see significant opportunities ahead of us and have put ambitious plans in place to increase future revenue, enhance productivity and create a more efficient organisation.”

The company also warned that full-year profits in 2017 would be “towards the bottom of the range of analysts’ expectations”.

Steve Clayton, head of equity research at Hargreaves Lansdown, said: “The travelling Chinese luxury consumer is clearly still reluctant to come out and spend money at the moment, and as long as that remains the case, things are likely to remain tough for Burberry.

“There is a great brand at the heart of Burberry, but it needs stronger Chinese demand to shine. The reductions in longer term market growth expectations are disappointing, but reflect the new reality.”

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