Burberry has said its prospects this year will depend on the impact of Covid-19 in China, but maintained its prediction of high single-digit sales growth and better margins as it sells more products at full price.
Chinese consumers globally account for £2 in every £5 spent at the UK’s only big luxury goods retailer, and chief financial officer Julie Brown acknowledged “significant disruption” from a resurgence of coronavirus in the world’s second-largest economy.
“Around 40 per cent of our network [in China] is affected at the moment,” said Brown. “That includes stores that are closed plus the disruption to digital.”
She added that the impact was worse than the previous uptick in Covid cases last August, but not as bad as during the first wave in early 2020.
The company did not give any detail on current trading, but said sales in China fell 13 per cent in the final quarter of its financial year to April 2. That was just before Shanghai, home to 26mn people and several Burberry stores, was put into a strict lockdown.
Official data showed retail sales in China fell 11 per cent in April, against a 3.5 per cent year on year decline in March.
Brown also stressed that sales in China tended to rebound very strongly after lockdowns eased. “After the first wave the recovery was very quick and very pronounced.”
Bernstein analyst Luca Solca said Burberry was more exposed to China than its luxury peers “and should therefore have more material rebound potential if the Chinese ‘zero-Covid’ policy was amended or phased out before the second half of the year”.
Thomas Chauvet at Citi noted that the group’s shares had outperformed the wider luxury sector so far this year, after two years of underperformance.
The stock was little changed in morning trade on Wednesday, and there was no update on strategy after the arrival in March of new chief executive Jonathan Akeroyd from Versace.
But Akeroyd praised the impact of his predecessor Marco Gobbetti and chief creative Riccardo Tisci, who have increased Burberry’s exposure to categories such as leather goods and taken the brand upmarket.
“The decision to exit markdown was very brave and very impressive,” he said, referring to the company’s move to focus on full-price sales. “We are in a very good place here.”
Akeroyd said his immediate priorities were brand, product and retail, and promised a November update on strategy.
Burberry said it was taking steps to mitigate cost inflation but expected to benefit significantly from a stronger dollar in this financial year.
“We are seeing a significantly stronger dollar and renminbi against the pound,” said Brown. “Our costs of sales are mostly in pounds and euros and our head office costs are also in pounds.”
The US and China account for about a quarter and a third of group sales, respectively, and Burberry said it expected that exchange-rate movements would add £92mn to operating profit in the current year, a reversal of the £33mn headwind during the past year.
Group-wide sales were £2.8bn, an increase of 23 per cent at constant exchange rates and adjusted for an extra trading week. Operating profit was up 4 per cent at £543mn.
The company also said it would spend £400mn buying back its own shares, a big increase from the £150mn buyback last year.