Burberry is flatlining because of China
Here are the highlights for the period, which covers the 6 months to September 30:
- Revenue flat at £1.1 billion ($1.6 billion);
- Pre-tax profit up 3% to £153 million ($232.2 million) but flat if you factor in the impact of currency conversion;
- Retail/wholesale revenue up 1%;
- Licensing revenue down 13% as a Japanese deal lapsed as planned.
While it's hardly disastrous, the numbers paint a picture of a business that is stalling. Burberry itself called it a "robust performance amidst [a] challenging environment for luxury."
If you look under the hood it's clear that there's one big problem - Asia.
Retail sales overall were up but in the Asia Pacific region there was a "mid-single digit decline" due to "further year-on-year deceleration in Hong Kong" and a fall in sales from mainland China.
Meanwhile, wholesales revenues - money earned selling scarves and trench coats to shops that will then flog them rather than peddling the stuff directly to consumers - fared even worse. Here's Burberry:
Wholesale revenue in Asia Pacific saw a double-digit percentage underlying sales decline in the first half, largely reflecting falling demand from travel retail customers, particularly in Hong Kong, Macau and Korea.
Double-digit! Ouch. Burberry warned of the slowdown in Asia as recently as last month, sending its share price tanking. China is a huge market for Burberry, which has benefited from a boom in luxury buying power in Asia over the last decade.
But a recent crackdown on luxury "gifting" and general outward displays of wealth by Chinese President Xi Jinping has led to tanking sales in the country for Burberry and other luxury goods makers.
Because of last month's warning, Burberry investors were expecting bad news. Shares have been diving since Monday but are up over 1% this morning, perhaps with investors viewing the update as not as bad as it could have been.
