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Burberry sales losses checked

Luxury brand back to growth in China in June quarter, but still struggling everywhere outside of Asia
July 15, 2020

Luxury retailer Burberry (BRBY) has finally been able to point to a positive trend: its sales are falling less than before. In a trading update covering the June quarter, the fashion house said its China sales had picked up to pre-Covid-19 levels.

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There is some nuance to this, however, as the company said this was partly driven by the “repatriation” of sales as Chinese buyers purchased at home instead of Europe or North America. 

This drove sales growth in China in the “mid-teens” in the quarter, the company said. But overall, sales were down 45 per cent for the 13 weeks to 30 June, to £257m. For June itself the year-on-year drop was 20 per cent. Investors were seemingly hoping for a quicker improvement, with the share price falling 5 per cent on these numbers.

Burberry expects sales to be down 15-20 per cent in the current quarter year on year, and 40-50 per cent for the half. Gross margin is forecast just over 65 per cent, down 200-300 basis points on the first half of 2020. 

The company has made it clear that it is working on its cost base at the same time as trying to ramp up sales. It will save £35m this financial year through a restructure, although this will incur a one-off expense of £45m. Cutting office space will lead to annualised savings in the longer term of around £55m.