LONDON — Burberry is the latest luxury brand to admit that volatile exchange rates are playing havoc with its global pricing structure.

This story first appeared in the April 16, 2015 issue of WWD. Subscribe Today.

As the firm reported sales for the six months ended March 31, Carol Fairweather, its chief financial officer, said the label “adjusts prices…season to season” as part of its pricing strategy.

“Recent FX volatility has clearly impacted global pricing architecture, both for us and our peers, so we will act thoughtfully and responsibly to address this, as we always do,” said Fairweather, who said the firm’s strategy is to “actively manage those prices as appropriate for our customer, our business and our brand.”

“We’re doing exactly what we’ve always done, there is no change to our strategy,” she said.

Also on the conference call Wednesday, Fay Dodds, vice president of investor relations at Burberry, noted that in terms of leather-goods pricing the firm considers Louis Vuitton, Prada and Gucci as its peers, and Armani, Max Mara, Ermenegildo Zegna and Moncler in terms of clothing. “It’s those immediate peers who we look to as we manage pricing season to season,” Fairweather said.

While analysts at Barclays in London noted an “outperformance for [Burberry] versus the industry” in a note on the label’s trading update Wednesday, the bank cautioned over “a key risk…medium term from price cuts.”

“Burberry has one of the highest premiums between European and Chinese pricing,” the note read.

Barclays pointed to LVMH Moët Hennessy Louis Vuitton’s cfo Jean-Jacques Guiony’s comments Tuesday that the luxury group would not act immediately on prices in the wake of recent currency movements, while Chanel said last month that it aims to harmonize its global prices. “Although LVMH [the price leader notably in leather goods] yesterday announced that they are delaying any decision on pricing until the FX environment stabilizes, we still believe that in a sustained period of euro/dollar weakness that we will see prices have to narrow,” the note read.

Rogerio Fujimori, an analyst at RBC Capital Markets in London, said Wednesday that as LVMH is a “price leader,” other labels are in “wait-and-see mode,” regarding pricing changes. In a research note last month, Fujimori described luxury labels as “between a rock and a hard place” on pricing, as price rises in Europe would hurt demand there, but labels also need to support their stores in China and cannot allow a gray market to grow in the region, as would happen if prices remain high. Added to that, online shopping means there’s greater transparency for consumers on global pricing. Fujimori’s note estimated that Burberry’s prices are around 80 percent higher in mainland China than in Paris and 65 to 70 percent higher in China than London.

Exchange rates are set to impact Burberry’s full-year profits. The company reiterated in Wednesday’s update that for the fiscal year to March 31, which it’s due to report May 20, exchange rates have had “a material impact on reported profit.” Burberry said that its expected full-year 2015 retail/wholesale profit will be about 25 million pounds, or $37 million, lower than it would have been at full-year 2014 exchange rates. For the 2016 fiscal year, if exchange rates were to remain at the level of March 31, the firm said its expected retail/wholesale profit would be 50 million pounds, or $73 million, higher than it would be at full-year 2015 rates.

The company on Wednesday reported a 10 percent hike in revenues at actual exchange rates in the six months to March 31, to 1.42 billion pounds, or $2.2 billion, rising 9 percent at constant exchange rates. All dollar figures are calculated at average exchange rates for the period.

Christopher Bailey, Burberry’s chief creative and executive officer, called the results “a robust second-half performance, despite an uncertain external environment.”

“We anticipate external challenges will continue in the current year, but remain confident in our long-term strategy to build the Burberry brand and business globally,” he added.

The label pointed to healthy growth in the Americas and the EMEIA — Europe, Middle East, India and Africa — region as boosting sales. That was offset by weaker performance in the Asia Pacific market.

Over the half, Burberry’s retail revenues rose 14 percent at actual exchange rates to 1.06 billion pounds, or $1.64 billion. The firm noted that the Americas had seen double-digit same-store sales growth, with a “strong performance” in the U.K., France and Italy, driven both by domestic and traveling customers. In terms of retail and wholesale sales, the Americas rose 18 percent at actual exchange rates to 378 million pounds, or $586 million, in the half. The label opened two stores in the U.S. over the half, including a flagship on Rodeo Drive in Los Angeles and a store in Miami’s Design District.

By contrast, Burberry logged low-single-digit same-store sales growth in the Asia Pacific market, with China and Korea up by only a “midsingle-digit percentage,” the label said, and a single-digit decline in same-store sales in Hong Kong, a high-margin market for Burberry.

Fairweather noted a “further deceleration in Hong Kong,” over the half, with footfall in the region down “significantly.” Hong Kong has seen a sharp slowdown in luxury spending in recent months, following pro-democracy protests there late last year and a shift from wealthy to more middle-class tourists from China visiting the region. In light of those conditions, Fairweather said Burberry focused on “factors under our control” in the region, and was able to increase conversion rates once customers were in the stores. “We are still seeing growth from the Chinese consumer everywhere other than in Hong Kong,” said Fairweather, noting that growth in the EMEIA region came from both domestic consumers and international tourists.

The label said its directly operated stores in Japan performed well, with same-store sales there climbing 30 percent during the period. Burberry opened a flagship in Osaka, its fifth freestanding store in the country, and relocated its store in Omotesando, Tokyo. But a lack of immediate availability of retail space in Japan — as Burberry has taken back its historic licenses in the country and has moved to a directly operated business there — will impact the firm’s full-year 2017 forecasts for the region.

In terms of winning products over the half, Burberry pointed to demand for the label’s heritage trenchcoats and its scarves and ponchos, with Fairweather saying those products “were really what underpinned this 9 percent [underlying] growth in this half.” She also noted the impact of the label having made its trenchcoat styles easier for customers to understand. “We said there are three core shapes, sizes and colors, and made it simpler for people to understand what a Burberry trenchcoat is,” Fairweather said, adding that the core trenchcoats stand alongside its fashion trenchcoats.

Wholesale sales fell 1 percent at actual exchange rates and were unchanged at constant exchange rates at 331 million pounds, or $513 million. The company blamed “cautious” ordering from wholesale customers in Europe and Asia. Excluding beauty, wholesale revenue fell 3 percent on an underlying basis to 231 million pounds, or $358 million. For the six months to Sept. 30, 2015, Burberry forecast wholesale revenues at constant exchange rates to remain “broadly unchanged,” from the year-ago period.

In the half, wholesale beauty sales rose 8 percent on an underlying basis to 100 million pounds, or $155 million — boosted by the success of the My Burberry fragrance — contributing to wholesale beauty sales of 175 million pounds, or $271 million, for the year. Burberry’s combined retail and wholesale beauty sales for the second half rose 9 percent at actual exchange rates to 106 million pounds, or $164 million. The firm forecast that its wholesale beauty revenue will rise between 10 and 15 percent in the 2016 fiscal year.

In the current fiscal year, Burberry said it expects to open between 15 and 20 mainline stores — with what it called a “further evolution” of its store portfolio in China — and to close the same number of stores. During the six months to March 31, Burberry opened seven stores and closed nine.

Burberry’s shares closed up 2.5 percent to 18.29 pounds, or $26.87, on the London stock exchange Wednesday. Burberry is to report its results for the year ending March 31 on May 20.

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