Despite a 2 per cent drop in the share price on the back of these results, Burberry (BRBY) investors shouldn't have been too shocked by the disappointing numbers. Let's start with the positive. Retail sales, which account for just under three-quarters of group revenues, rose 2 per cent on an underlying basis, or 11 per cent at reported currencies, to £859m. Much of that was down to positive traction in Europe, and specifically the UK where the weak pound has attracted higher numbers of tourist shoppers.
Unfortunately, this progress was largely offset by significant weakness in the group's wholesale and licensing divisions, which came to light last month as part of a first-half trading update. The latter only accounts for 1 per cent of turnover, and the 54 per cent crash in underlying revenues reflects the long-planned expiration of Japanese licences. But wholesale accounts for a quarter of group sales, and management's plan to "elevate" the brand in the US and the beauty sector - translated as zero tolerance for any promotional activity - has led to a 14 per cent drop in underlying revenues there as partners destock rather than let inventories build up.