LONDON — Burberry may be winning accolades from analysts for its robust growth in the first half, but the company is braced for tougher times ahead.
First-half revenue at Burberry Group plc rose 6.7 percent to 1.1 billion pounds, or $1.85 billion at average exchange for the period, with growth spread evenly across all geographic regions and major product categories.
Stripping out adverse currency effects, first-half revenue advanced 14 percent, with bestsellers including showpieces such as the poncho and the heritage trench, the Orchard and Crush handbags and the new My Burberry fragrance.
Citi said Burberry was “still top of the bunch, delivering industry-leading growth,” while Exane BNP Paribas called the results “strong” and said the company is performing well above average for the sector.
Bank of America Merrill Lynch, meanwhile, said it expects Burberry’s first-half revenue growth to be “well ahead of luxury sector peers” when they report over the next six weeks.
This golden age of growth, however, may soon lose its luster. In the same breath as reporting a strong first half, Burberry warned that, going forward, its margins would come under increased pressure from macro-economic forces.
Chief creative and executive officer Christopher Bailey said the business was “mindful of the more difficult external environment” ahead, which chief financial officer Carol Fairweather reiterated during a conference call later in the morning.
As a result, Burberry said it was expecting “a slight downward pressure on the retail/wholesale margin,” as it continues to invest in key initiatives to drive long-term profitable growth. “Our goal to realize further margin improvement over time remains unchanged,” it added.
At 12 p.m. GMT, Burberry’s share price had fallen 4.3 percent to 14.15 pounds, or $22.76 at current exchange.
Fairweather said Burberry didn’t consider itself different from any other company in its keen focus on world events and their impact on the business.
“There are geopolitical uncertainties, we’re conscious of Ukraine, the disruption in Hong Kong, tensions in the Middle East, we’re watching Ebola, we’re aware that the general economic environment may be slowing around the world,” she said. “We’ll continue to balance risks with opportunities and we are very focused on controlling what we can control.”
The company pointed out in its statement that the first quarter’s 12 percent growth in like-for-like retail sales slowed to 8 percent in the second quarter, affected by external factors in some markets. As a result the first half saw an overall increase of 10 percent in like-for-like retail sales.
It said that in the second quarter the Asia-Pacific region saw “some softening” in growth from Chinese customers both at home and while traveling. In the first half all regions notched double-digit underlying growth and single-digit growth at reported exchange rates.
In its report on Burberry, Citi acknowledged that growth was moderating, and that sales among Chinese tourists and domestic consumers were slowing.
“Burberry remains one of the very few luxury companies to continue to enjoy double-digit revenue growth in a sector heavily impacted by recent demand headwinds in Hong Kong, and Europe, while uncertainty remains on the potential impact of the Ebola virus on global travel flows,” Citi said in its comment.
One trend, however, is definitely working in Burberry’s favor: currency headwinds. The strong pound, euro and Swiss franc have plagued luxury companies over the past year, but that problem is improving.
Fairweather said the company had already seen a 30 million pound, or $48.3 million, bounce in its expected reported profit due to the more favorable currency movements. However, if rates remain the same, the company will continue to suffer from the adverse effects of the powerful pound.