LUXURY FASHION brand Burberry said sales were hit by a drop in tourist spending in Continental Europe and weak demand in Hong Kong and it expects the tough conditions to persist, hitting profits this year.
The company, famous for its Yorkshire-made trenchcoats, reported revenue of £1.41bn for the six months to March 31, down one per cent on an underlying basis.
Like-for-like retail sales fell five per cent over the last three months, resulting in a two per cent fall for the second half period as a whole.
Christopher Bailey, the Halifax-born chief creative and chief executive officer, said: “In an external environment that remains challenging for luxury, we continue to focus on reducing discretionary costs and are making good progress with developing enhanced future productivity and efficiency plans.
“Meanwhile, brand momentum is strong, digital continued to outperform in the half and innovation in new products is resonating well with our customers.”
Burberry is planning to open a new manufacturing and weaving facility for its heritage trench coat in the heart of Leeds.
The site, on the South Bank of Leeds, will employ more than 1,000 people when it is completed in 2019.
Burberry is spending an initial investment of £50m on the site.
Finance director Carol Fairweather said: “We are very excited about the Leeds facility. It’s great to be investing in the UK.”
The site will allow Burberry to continue to produce its most iconic product, the heritage trench coat, in Yorkshire where the brand has been manufacturing for over half a century.
The new facility will replace the two existing manufacturing and weaving centres in Castleford and Cross Hills, in West Yorkshire.
The plan is for all the teams from Castleford and Cross Hills to move to the new site, bringing all employees together under one roof. The company employs 700 staff in Castleford and around 70 in Cross Hills.
Sales to upmarket tourists, particularly from China, fell in Europe, while comparable sales in Hong Kong declined by over 20 per cent for the third successive quarter.
Burberry said adjusted profit before tax for the year to the end of March 2016 would be broadly in line with analysts’ expectations, which range from £401m to £443m. The group was not so optimistic for the current year, saying profit would come in towards the bottom of forecasts, which sits at about £405m.
Connor Campbell, analyst at Spreadex, said: “Burberry has suffered of late due to its dependency on Hong Kong and China, the haemorrhaging of sales in both regions causing havoc for its stock price, and it looks like the company’s issues have no end in sight, its retail woes joined by a forecast 10 per cent fall in its wholesale division.”
Analyst Steve Clayton at Hargreaves Lansdown added: “Burberry’s long-term performance has been excellent, but the current slowdown in Chinese demand has caused weakness in the share price. Luxury consumers are not risk-free clients, but they tend to be resilient, because wealth is typically more durable than income. But Burberry seem to have a particular problem in Hong Kong.”