Despite a strong second-half update from luxury retailer Burberry (BRBY), the market is becoming increasingly concerned about what foreign exchange rates are doing to the company's numbers. Broker Liberum warned that the recent rally in the pound following the announcement of a snap general election in the UK means Burberry's benefits from sterling weakness could soon disappear. Total revenues over the second half came to £1.61bn versus consensus forecasts of £1.62bn. That marks a decline of 1 per cent on an underlying basis, but 14 per cent growth on a reported basis once foreign exchange rate gains are taken into account.
With a new chief executive due to arrive in early July, we are hoping the new management will address the pressures being felt by the underlying business that currency gains are helping to mask. Weak demand in the US continues to weigh on Burberry's wholesale division, while the de-stocking of the beauty business ahead of a new deal with cosmetics giant Coty is also acting as a short-term drag.
There was encouragement to be had from the trading update, though. The group performed especially well on home soil thanks to an influx of tourist shoppers, and returned to growth in China, too.
