Burberry jolted as luxury spending declines

A sharp sales slowdown in Hong Kong and the Chinese mainland led Burberry Group Plc to miss sales growth forecasts on Thursday, and warn of an increasingly challenging environment for luxury goods sales.

Carol Fairweather, chief financial officer of the 159-year-old brand famous for British-made trench coats and cashmere scarves, highlighted increased Chinese and global stock market volatility, currency swings and concerns over slowing economic growth.

"We believe this affected the confidence of and thus demand from luxury consumers, and especially the Chinese customers in some of our key markets," Fairweather said.

Burberry's retail revenue rose 2 percent to 774 million pounds ($1.2 billion) in the six months to Sept 30, below analysts' average forecast of 818 million pounds and a sharp slowdown from first-quarter growth of 8 percent.

Second-quarter comparable store sales fell 4 percent, having been up 6 percent in the first quarter.

"Given that Hong Kong comprises one-tenth of the company's sales, a fall was to be expected," said Spreadex analyst Connor Campbell. "The extent of the fall, however, was an unpleasant surprise."

Hong Kong and mainland shoppers account for between 30 and 40 percent of Burberry's global revenue.

The group said it had responded to the tougher environment by reallocating marketing spend and accelerating actions to control costs, such as reducing travel expenses.

That, it said, would minimize the impact on profit for the 2015-16 fiscal year.

It said it expected to meet the average forecast of analysts who had recently updated forecasts for adjusted pretax profit of 445 million pounds. It made 456 million pounds in 2014-15.

Burberry saw a mid single-digit percentage decline in comparable-store sales in Asia Pacific, which includes Hong Kong and the Chinese mainland, where sales were down more than 20 percent and around 5 percent respectively.

Fairweather noted growth from Chinese customers was significantly higher in continental Europe, where Burberry's presence is less developed than the UK.