LONDON — Burberry’s trading has fallen between 40 percent and 50 percent in the last six weeks due to the impact of COVID-19, the company said in an extraordinary trading statement on Thursday. The British company had originally planned to update the markets in April about the impact of the virus.
The company is expecting comparable retail store sales in the final weeks of the year to be within the range of minus 70 percent to minus 80 percent. This follows the significant escalation of governmental regulations; trading, travel and social restrictions in recent days, “and the inevitable impact this will have on demand,” Burberry said.
As a result, the British luxury brand now expects fourth-quarter 2020 comparable retail store sales to be around minus 30 percent in the fiscal year ending March 28.
“Since our February update, the material negative effect of COVID-19 on luxury demand has intensified and is now impacting the industry in all regions,” said Marco Gobbetti, chief executive officer.
“Our primary concern is the global health emergency, and we continue to take every precaution to help prevent the spread of the virus and ensure the safety and well-being of our employees, partners and customers. We are implementing mitigating actions to contain our costs and protect our financial position, underpinned by our strong balance sheet. We remain confident in our strategy and the strength of our brand, and I am exceptionally proud of our teams’ resilience and commitment.”
The company said that since Jan. 24, trading has deteriorated “significantly,” with comparable retail store sales tracking between minus 40 percent and minus 50 percent.
Last month, sales losses were predominantly in the Asian markets, Burberry said. As the number of cases of coronavirus wanes, mainland China has started to improve with the reopening of most Burberry stores. China is Burberry’s largest market, accounting for up to 40 percent of sales.
By contrast, sales in EMEIA, which comprises Europe, the Middle East, India and the Americas, have fallen “materially” in recent weeks.
The company said more than 60 percent of its stores in EMEIA and around 85 percent of its stores in the Americas are currently closed, and those still open are operating with reduced hours and with “very weak” footfall. In total, around 40 percent of Burberry’s directly operated stores globally are closed with additional closures expected over the coming days.
The company said it is working hard to contain costs and protect its financial position, including renegotiating rents, restricting travel and reducing discretionary spending.
The company said most teams are working from home while work patterns for others have changed drastically, with specific shift rotations for teams “whose roles cannot be performed remotely.” Burberry, like other online and offline companies, said it has put in place strict protocols for hygiene and social distancing.
“We remain confident in the strength of our brand and our strategy. Until Jan. 24, the consumer response to the new product was very positive and, as such, we are protecting key growth initiatives in preparation for a recovery in luxury demand,” the company said.
Burberry added that it has “significant financial headroom,” including liquidity of 0.9 billion pounds, from 0.6 billion in cash balances (before lease obligations) and a 0.3 billion revolving credit facility. As of September 2019, the company had leverage of 0.4 billion pounds of net debt including lease liabilities.
The company said is operating with a net debt including lease liabilities to EBITDA ratio within our targeted range of 0.5x to 1.0x.
There will no longer be a trading update in April, Burberry said and its next scheduled announcement will be the preliminary results in May.