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Burberry’s China Rebound Fails To Impress Investors

Burberry, the British luxury fashion brand, reported a strong fourth-quarter performance driven by a rebound in China, its biggest market. However, its shares fell sharply as investors were disappointed by the continued weakness in the United States, where sales declined 7% in the quarter.

The company said comparable store sales rose 16% in the three months to April 1, beating analysts’ expectations of 14%. Sales in China increased 13%, reflecting the recovery of consumer spending after the country eased COVID-19 restrictions. The global spend by Chinese consumers accounted for 30% of total business sales.

However, Burberry’s performance in the Americas was lackluster, as it faced weaker demand from younger consumers, who tend to buy lower-priced categories. The company’s chief executive Jonathan Akeroyd said there was a “challenge there at the moment” and that Burberry was working on improving its product mix and marketing to attract more customers.

Burberry also maintained its 2024 and medium-term targets, while stating it was “mindful of macroeconomic and geopolitical environment”. The company’s shares had hit record highs in recent months on the back of optimism over the recovery in China, but they dropped 4.9% on Thursday after the results.

Some analysts said Burberry’s cautious outlook and lack of guidance upgrade for the new financial year were the triggers for some investors to take profit in the stock. Russ Mould, investment direct at AJ Bell, said: “The fact Burberry hasn’t lifted its guidance for the new financial year after…a strong set of results, and reference to…the macroeconomic and geopolitical environment, appear to have been the trigger for some investors to take profits in the stock”.

Burberry’s results contrast with those of its luxury rivals LVMH and Hermes, which have also reported a bounce in first-quarter sales due to a recovery in China and wider Asian markets. Burberry is still undergoing a transformation under its creative director Daniel Lee, who debuted his first collection at London Fashion Week in February and launched a new collection, which includes shoes and bags, will land in stores and online in September.

Burberry’s leather goods sales were up 12% in the 2023 financial year and 15% higher in the final quarter, boosted by sales in the Lola and Frances women’s bags as well as the launch of the vintage Burberry Check line. However, leather goods still account for only 40% of Burberry’s sales, compared with more than 60% for some of its peers. Burberry will need to continue to innovate and expand its product range to compete with other luxury brands and appeal to a wider customer base.

Burberry has shown resilience and agility in navigating the challenges posed by the pandemic and capitalizing on the opportunities in China. However, it still faces headwinds in other markets, especially the US, where consumer preferences are shifting. Burberry will have to balance its heritage and identity with its ambition and creativity to deliver sustainable growth and value for its shareholders.



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