Burberry upbeat on steady outlook

Bloomberg

Burberry Group Plc held its medium-term forecast steady despite severe lockdowns in parts of China in April and May that hurt demand for luxury products.
The British fashion brand continues to target high-single digit revenue growth and a 20% margin at a constant currency in the medium term, as it “actively manages” the impact of lockdowns in China and soaring inflation in its home UK market, the company said in a statement.
Burberry shares declined nearly 7% in early trading.
Known for its trench coats and distinctive check pattern, Burberry is more exposed to China than many of its rivals and derives about a third of its sales from the country. Its home market, the UK, is also battling the worst inflation in 40 years with energy and wage bills soaring.
Comparable store sales at the British fashion brand rose 1% during the April to June quarter, Burberry said. When mainland China was excluded, comparable sales were up 16%, showing the impact of the lockdowns. Burberry said the performance since stores in China reopened in June has been “encouraging.”
Concerns over Covid-19 haven’t gone away with the number of cases in Shanghai rising again and residents fearing they could head back into lockdown.
“The biggest impact in China is really relating to Covid as opposed to any wider economic impact,” said Julie Brown, chief operating and financial officer of Burberry. “40% of the distribution was effectively closed at the beginning of the quarter.
In June when stores reopened we have seen a positive reaction from consumers, but we are still hampered by the fact that people need a
72-hour PCR test.”
In an attempt to lessen its reliance on the China market, Burberry renewed its focus on high-spending clients in Europe and the Middle East with comparable sales in the region rising 47% during the period. It also recorded double-digit growth in its leather goods and outerwear divisions, excluding China.
A stronger dollar will help boost Burberry’s current fiscal year performance and will add £190 million ($225 million) to sales, up from a previous estimate of £159 million.
Burberry’s new Chief Executive Officer Jonathan Akeroyd took over in March. The former head of Versace is expected to follow the work of predecessor Marco Gobbetti, shifting Burberry’s prices higher, reducing third-party distribution and eliminating discounts.
The brand is also betting on the crucial leather-goods category which has released notable models like the Olympia handbag.