Burberry's Profits Fall as Sales Decline in China
British luxury brand Burberry reported a significant drop in annual operating profit, with sales falling sharply in its biggest market, China. The company had previously warned that its ambition to become the definition of "Modern British Luxury" had been harder than expected, with demand for luxury goods slowing down.
Like-for-like sales fell 12% in the final quarter, dragged down by a 19% slump in China. This wiped out gains made earlier in the year. Adjusted operating profit came in at 418 million pounds ($526.4 million), within the downgraded range of 410 million to 460 million pounds but ahead of analysts' forecasts.
Despite the financial underperformance, Burberry expressed confidence in its strategy. CEO Jonathan Akeroyd stated that the company had made good progress refocusing its brand and was adapting to the external environment. He expects to see the benefits of these actions in the second half of the current financial year.
Shares in the group, which have halved in the past year, opened 3% lower. Burberry has lagged behind high-end competitors like Hermes and Prada, which have reported increases in sales. However, the luxury sector as a whole is facing challenges, with Gucci owner Kering and Louis Vuitton-owner LVMH also reporting weak sales in recent quarters.
The Americas continued to be a weak spot for Burberry, with comparable store sales down 12% in both the year and the fourth quarter. Sales in Europe, which had been improving, also fell in the final quarter, recording a 3% drop.
Creative director Daniel Lee is key to the brand's repositioning. He showed his third collection at London Fashion Week in February, which focused on the brand's outerwear heritage.