Oct 18, 2016
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Burberry hit by weak department stores despite sterling boost

Oct 18, 2016

British luxury fashion brand Burberry reported a drop in first-half sales on Tuesday, hitting its shares as weak demand from department stores offset a surge in sales in its home market as tourists took advantage of a lower pound.

The stock, one of the best performers since Britain voted to leave the European Union on June 23 in anticipation the company would benefit from a slide in the pound, dropped as much as 9 percent, its biggest one day fall for four years.

Burberry - Fall-Winter2016 - Womenswear - Londres - © PixelFormula

Burberry, which makes more than 80 percent of its sales in international markets, said positive trading in Europe and a 30 percent jump in sales in Britain helped it generate a 2 percent rise in comparable retail sales in the second quarter, its first growth in that measure for four quarters.

But total sales fell 4 percent on an underlying basis to 1.16 billion pounds ($1.44 billion) in the six months ended September, as its stores performance was dampened by a fall in wholesale and licensing revenues.

"Foreign exchange benefits aside, Burberry struggles to drive meaningful growth," broker Liberum said, adding it expected no improvement in the second half as U.S. department store demand remained depressed. It has a "sell" rating on Burberry stock.

The shares hit a 14-month high on Friday, partly in anticipation of a currency-related lift to sales and profit.

Burberry said if sterling remained at the level of Oct. 12, adjusted profit for the year would be boosted by some 125 million pounds.

The trench-coat maker incurs about 40 percent of its costs in Britain, but makes about 15 percent of its sales in its home market, with more than half of those coming from tourists, analysts estimate.

Chief Financial Officer Carol Fairweather said there had been strong demand from both consumers and tourists in Britain in the three months since the Brexit vote.

"The Chinese are very much part of that, but all tourists are up in this quarter, the U.S. as well," she said.

"(They are) clearly influenced by foreign exchange rates movements but they are also really responding to everything they are seeing in the stores."

Burberry, which added actress Lily James to its list of models in the summer, has been working to improve its stores, where sales margins have lagged luxury industry rivals.

Christopher Bailey, who will relinquish the chief executive half of his role to Marco Gobbetti from French brand Celine next year, said the group was making progress in its self-improvement plan in a retail environment that remained "challenging".

"We remain on track to deliver our financial goals," said Bailey, who will remain chief creative officer and become company president.

At 0920 GMT, Burberry shares were down 8.7 percent at 1,380 pence, handing back almost all of the gains made this month.

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