LONDON: British luxury brand Burberry warned that conditions in some of its markets, including China, had worsened in its second quarter,
overshadowing a 14 percent increase in the group's first-half sales.
Shares in the 158-year-old fashion company, known for its raincoats with camel, red and black check patterned linings, fell up to 6 percent on Tuesday after Burberry said the "external environment (was) becoming more difficult."
It said this was expected to result in slight downward pressure on its retail/wholesale profit margin.
The luxury sector was also dented on Tuesday by a third profit warning this year from smaller rival Mulberry.
The global luxury goods industry is facing a testing time, with the Ukraine crisis hitting demand in Russia and pro-democracy demonstrations in Hong Kong adding to concerns about a slowdown in China, where a government crackdown on corrupt gift giving has hurt luxury sales.
Burberry's Chief Financial Officer Carol Fairweather said the firm was aware of these issues as well as war in the Middle East and the impact of the Ebola virus on travel but was confident it was outperforming rivals.
"In Q2 we still saw high single digit (sales) growth in Asia, and from the Chinese, in China and when they were travelling," she told reporters.
"We still saw good growth from (the) Chinese. It just wasn't double digit as it had been in previous quarters. We believe that will probably be outperformance compared to our peers."
Fairweather also noted that in Hong Kong, Burberry posted double-digit sales growth in both the first and second quarter.
Burberry's first-half to Sept. 30 revenue of 1.1 billion pounds ($1.76 billion) reflected a strong performance across all regions and continued digital growth.
Its first-half performance overall was driven by retail sales growing 15 percent to 748 million pounds - bang in line with analysts' average forecast, with comparable sales growth of 10 percent.
Wholesale revenue rose 5 percent, excluding beauty, to 317 million pounds.
But for its second half to March 31, 2015 Burberry expects wholesale revenue, which is sales to third parties such as department stores, to be down by a "mid single-digit percentage," reflecting a more cautious approach from customers selling to the European consumer and in Asian travel retail markets.
Burberry said that if exchange rates remained at current levels, the full impact on reported retail/wholesale profit in the 2014-2015 year would still be material though less than it had previously guided.
As an indication, it said rebasing 2013-2014 retail/wholesale profit for current effective exchange rates would have reduced reported profit by about 25 million pounds. Burberry had previously flagged a potential hit of about 55 million pounds.
Analysts at Nomura raised their 2014-15 pretax profit forecast to 452 million pounds from 440 million pounds, after taking into account the currency guidance and the slowdown in China growth.
"Looking ahead, while mindful of the more difficult external environment, we have never been better prepared internally for the all-important festive periods," Christopher Bailey, Chief Creative and Chief Executive Officer, said.
Bailey took over in May from Angela Ahrendts, who left Burberry for U.S. technology group Apple.
Shares in Burberry, down 8 percent over the last year, were down 68 pence at 1,412 pence at 0854 GMT, valuing the business at 6.3 billion pounds. (Reuters)
