LONDON — The luxury sector might be breathing easier as a bullish Burberry, undaunted by slower demand in Mainland China, said Thursday it will continue to open as many as 10 stores there each year, in line with its original strategy.
The optimism comes on the heels of a warning last month of a slowdown in the company’s retail sales, which shook luxury sector stocks and sent Burberry’s plummeting nearly 21 percent. The brand did in fact report a slowdown in revenue growth in the second quarter, due partly to declining footfall in China, but said the country’s underpinnings were solid.
Burberry added it remains keen on the potential for growth in China’s flagship markets in particular.
“In Shanghai, for example, we’re not nearly at the level we should be for such a vibrant, dynamic market,” said Burberry’s chief financial officer Stacey Cartwright, adding that the company planned to open three flagships in that city over the next 12 months.
Burberry currently has 68 stores in 32 cities in Mainland China, and the aim is to get to 100 stores in 35 cities in the medium term.
Cartwright was speaking on a conference call, following a second-half trading update and news that Burberry plans to set up an in-house fragrance and beauty division after severing ties with Inter Parfums SAin March.
Burberry’s bullishness was clearly infectious, as the stock closed up 13.3 percent to 11.36 pounds, or $18.21 at current exchange rates.
Revenue in the three months ended Sept. 30 grew 2.6 percent to 475 million pounds, or $751 million at average exchange rates for the period.
Burberry said that a slowdown in footfall worldwide — in China and the U.K. in particular — contributed to the modest growth.
In the first quarter, growth was 11.2 percent, and in the final quarter of last year, it was 16.1 percent.
Burberry said the lessening in traffic was mitigated by higher average transaction values, and two of the brand’s priciest lines — Prorsum, the runway collection, and London — outperformed in the period.
In September, Burberry reported that same-store sales were flat, with new stores kicking in the 6 percent sales growth in the 10-week period. As a result, it said adjusted pretax profits for the full year would be “around the lower end” of market expectations.
On Thursday, the company noted that the second-quarter picture had improved slightly, with same-store sales rising 1 percent in the full three months, and new stores still contributing 6 percent of the overall retail growth.
In the quarter, Burberry cited a “modest improvement” in all three major regions. Comparable-store sales in the U.S. and Europe were unchanged year-on-year, while Asia-Pacific delivered slightly positive comparable-store growth.
Compared to the first quarter, Hong Kong, France and Germany maintained their “robust” performance, Burberry said, while the U.K. and China slowed. Korea and Italy remained weak.
With regard to the slowdown in China and the U.K., Cartwright said a variety of factors were at play: Gift-giving in China has slowed because of new government regulations, and because of a “macro” slowdown triggered by upcoming elections.
She added that Burberry’s London stores — like so many other fashion and luxury outlets — suffered from the Olympic Games, with footfall in London decelerating in the second half of July and in August.
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