Burberry to trim costs as Chinese woes weigh

Burrberry says annual profits will be 'broadly' in line with recently trimmed forecasts. Picture: Contributed

Burrberry says annual profits will be 'broadly' in line with recently trimmed forecasts. Picture: Contributed

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TRENDY trench coat maker Burberry is to ramp up cost savings to offset slowing sales growth as China’s ­economic woes continue to hit demand for luxury goods.

The fashion house said yesterday that trading worsened in its second quarter, with underlying retail revenues rising by 2 per cent over the six months to 30 September – a marked fall on the 8 per cent growth reported in the first half.

Like-for-like sales edged up 1 per cent overall in the half-year, but fell 4 per cent in the second quarter, and the group said it saw a “mid single digit” drop across Asia Pacific as Chinese customers in particular reined in spending.

Retail analysts have cut their full-year profit forecasts for Burberry in recent months as it has warned over a tough luxury market, with expectations falling from £462 million to £445 million.

The group said annual profits would be “broadly” in line with the recently trimmed forecasts, but this takes into account action to cut costs across the group.

It also assumes a reduction in staff bonuses.

The firm plans to push further with cost savings, such as reining in recruitment, reducing travel expenses and other discretionary costs, and keeping a tight control on marketing spend.

Burberry, which runs more than 200 stores around the world, generates around a third of its sales from the Asia Pacific region and has a significant presence in China.

Christopher Bailey, chief executive and chief creative officer, said: “The external environment became more challenging during the half, affecting luxury consumer demand in some of our key markets. In response, we have intensified our focus on driving sales and productivity, while taking swift action on discretionary costs.”

He added: “While mindful of this external volatility, our plans for the festive season position us well to return to a more positive sales trend in the all-important second half.”

Richard Hunter, head of equities at Hargreaves Lansdown, said Burberry’s second quarter was “underwhelming” noting that the group was suffering not only in Asia, but also the US as “general economic malaise” impacted domestic and tourist trade.

The 159-year-old brand is also famous for its cashmere scarves.

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