Strong sales in China give boost to Burberry Q2 performance

British luxury goods brand Burberry has said the easing of COVID-19 restrictions in China has come to its financial aid after its second quarter financial results defied predictions and pushed profits up.

In July the company reported quarterly sales growth of just 1 percent, with a pandemic-related 35 percent fall in sales in China, which is the company's biggest single market, dragging down growth of 16 percent across the rest of the world.

But increased tourist spending in Europe and the relaxation of rules in China have contributed to a much healthier picture in the second quarter, contributing to first-half revenue of 1.35 billion pounds ($1.61 billion), with adjusted operating profits rising by 6 percent to 238 million pounds.

The company's finance director Julie Brown said after the setback to Chinese sales in the first quarter, the second quarter had recovered to be just one percent down.

"In the first quarter we had some of the major cities locked down — Shanghai and Beijing — which impacted trading," she said. "In the second quarter the situation eased considerably."

Around 97 percent of spending by Chinese customers was happening in China, so when those consumers get back into the habit of international travel, sales could rise even higher.

In May this year, the Financial Times quoted Brown as saying that the novel coronavirus outbreak was causing "significant disruption" to its business in China, with Chinese consumers being responsible for around 40 percent of the company's global custom.

"Around 40 percent of our network (in China) is affected at the moment," said Brown. "That includes stores that are closed plus the disruption to digital."

The latest results come almost exactly a year since Burberry opened its flagship store in Shanghai's Plaza 66.

At the time, Josie Zhang, president of Burberry China, said: "The store is emblematic of our rich heritage — at once, embodying creativity and innovation with our new global design concept, while supporting China's ambition to become carbon neutral."

The improved performance and more positive outlook will come as a welcome relief for Burberry, after fears earlier in the year about its post-pandemic performance.

At the start of September, the Times newspaper quoted analysts at HSBC who were observing the luxury goods sector and noted that Burberry was "at risk of underperforming further...Relative to peers that have been roaring back in the post-COVID-19 period, the brand doesn't come across as the nimble, fast-growing superstar we believe it could have become."

So far, the global luxury goods market does not seem to be showing many signs of the impact of recession, and it is expected to continue to do well, largely because so much of its clientele is from the super-rich whose spending is unlikely to be affected.