Burberry plans cost savings as China woes hit sales growth

Burberry says China's economic woes have hit sales.

Burberry says China's economic woes have hit sales. - Credit: PA

Trendy trench coat maker Burberry said it will 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 trading worsened in its second quarter, with underlying retail revenues rising by 2% over the six months to September 30 - a marked fall on the 8% growth reported in the first half.

Like-for-like sales edged up 1% overall in the half-year, but fell 4% 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.

Burberry 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.

Burberry shares fell as much as 12% after the update.

Most Read

The group 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 over 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 of Burberry, 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.”

The group said mainland China comparable store sales dropped “slightly” in the second half, but Hong Kong has been particularly impacted as it has not only seen a drop in spend from luxury Chinese visitors, but also a fall in numbers of shoppers travelling to the city following last year’s lengthy pro-democracy protests.

The impact on Burberry has been compounded, as the Hong Kong market has traditionally been very profitable due to the high price tags charged by retailers in the city.

Burberry hopes that like-for-like store sales will return to “mid single digit” growth in the second half, with a boost from the key Christmas period.

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

Burberry saw growth slow across the US in the second quarter, although there was better trading in Europe, with sales up more than 20% in Italy, France and Spain.

This “significantly outperformed” the UK, where results have been held back by the strong pound.