Business week ahead: Burberry set for weaker sales

Fashion group Burberry is set to announce weaker sales next week as a result of China’s slowing economy, while WH Smith looks poised to boost its full-year profits.

Burberry has been affected by China's slowing economy. Picture: Getty
Burberry has been affected by China's slowing economy. Picture: Getty

Trendy trench coat maker Burberry is tipped to announce slowing sales when it posts an update on Thursday, dragged down by China’s softening economy.

Analysts at Jefferies expect it to announce a rise in group first-half revenues of 5 per cent to £1.2 billion compared to a year ago.

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This contrasts with the high growth previously enjoyed by the firm, which sells menswear, womenswear as well as beauty products.

The reason behind the brand’s weaker growth is the slowdown in China, which led to global stock market turmoil during the summer.

Earlier this week the International Monetary Fund said China – the world’s second-largest economy – will grow by 6.8 per cent this year and 6.3 per cent in 2016, which is below Beijing’s 7 per cent targeted growth rate.

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.

Analysts at Bank of America Merrill Lynch said: “Burberry has underperformed the luxury sector by 10 per cent in the last three months, partly due to its over-exposure to Greater China.”

Brokers at JP Morgan Cazenove add that the two current bright spots in the luxury goods market are continental Europe and Japan, where Burberry has fewer shops. It has cut its full-year earnings forecast for the business by 6 per cent to £440 million.

The fashion house said in July that it suffered a “double-digit decline” in Hong Kong sales in the three months to 30 June amid a “challenging luxury market” as trading continued to be impacted by last year’s lengthy pro-democracy protests in the city.

Chief executive Christopher Bailey said: “While mindful that the external environment remains challenging, we will continue to focus on growth opportunities across channels, regions and products, with exciting plans for the year ahead.”

Also on Thursday, retailer WH Smith is expected to boost its full-year profits when it reports its results, led by strong trading at its travel stores.

The City expects the magazines and stationary business to post annual pre-tax profits up by 7 per cent to £122m.

In an August trading update it said its 740 travel outlets at airports and train stations turned in a strong second-half performance, reflecting growing passenger numbers.

The firm, led by chief executive Stephen Clarke, said full-year profits for the year to 31 August would be “slightly ahead” of market expectations as a result of the robust trading.

Analysts at Numis said shares in WH Smith have outperformed the sector by about 35 per cent over the last year as the group has delivered a steady performance, with its travel business shops gaining momentum, against forecast downgrades at other retailers.

However, the broker added that it viewed the retailer’s current valuation of around 1,550p a share, or £1.8bn, as “challenging”.

Official figures due on Tuesday could show that the UK experienced mild deflation for a second time this year in September, with IHS Global Insight economist Howard Archer forecasting a 0.1 per cent decrease in the consumer prices index (CPI) amid weaker food prices and low petrol costs.

“This would match the 0.1 per cent dip seen in April, which was the first deflation since 1960 according to comparable calculations by the Office for National Statistics (ONS),” he said.

Last month, the ONS said CPI eased back to zero in August, from 0.1 per cent in July.