Burberry hit by US slowdown as strong run comes to an end

British luxury brand Burberry reported a slowdown in quarterly sales growth on April 19 as tough trading in the United States checked recent gains driven by a weaker pound. VIDEO: REUTERS
This file photo taken on Feb 23, 2015, shows models presenting creations from the Burberry Prorsum collection during the 2015 Autumn / Winter London Fashion Week.
This file photo taken on Feb 23, 2015, shows models presenting creations from the Burberry Prorsum collection during the 2015 Autumn / Winter London Fashion Week. PHOTO: AFP

LONDON (REUTERS) - British luxury brand Burberry reported a slowdown in quarterly sales growth on Wednesday as tough trading in the United States checked recent gains driven by a weaker pound.

Shares in the company, known for its classic trench coats, fell as much as 7.6 per cent in early trade. The stock had risen more than 50 per cent after Britain voted last June to leave the European Union, triggering a plunge in the pound that has attracted tourists to London to buy luxury goods.

Wednesday's update highlighted a range of problems facing incoming Chief Executive Marco Gobbetti, including weak trading in the United States, Hong Kong and South Korea.

Group comparable sales rose by 2 per cent in the three months to March 31, Burberry's fiscal fourth quarter. That was below analysts' average forecast of 4 per cent, the previous quarter's 3 per cent, and contrasted with a bullish update last week from LVMH, the world's biggest luxury group.

"In our view, Burberry needs new ideas to prompt stronger consumer interest," said Exane BNP Paribas analyst Luca Solca, forecasting a reduction in analysts' consensus profit forecast of 480 million pounds for the 2017-18 financial year.

The slowdown at Burberry comes as the 161-year-old group embarks on a managerial and operational restructuring designed to bring its sales performance up to the levels of rivals such as LVMH. "In an uncertain environment, we continue to take action to strengthen the brand and reposition Burberry for growth," Christopher Bailey, chief creative and executive officer, said.

Under the plans, Mr Bailey will in July relinquish the CEO part of his role to Italian Gobbetti, previously at Celine, while the firm also has a new finance director, Julie Brown.

It has announced plans to license its fragrances and cosmetics business to Coty in a deal that will give it access to the US group's extensive distribution network. But in the short-term its beauty business was hit by other distributors de-stocking the brand.

Burberry is also making changes in the United States, where it reduced the number of days it put its goods on sale in a highly promotional market.

And for 2017-2018, the company made clear it sees challenges ahead, as currency moves - supportive in 2016-2017 - turn negative. It said it expected an adverse impact of 10 million pounds in 2017-2018 as financial hedges designed to protect the business from higher procurement costs start to wear off.

In Britain, the group said it expected demand to remain strong, although CFO Brown noted the start of two-year Brexit divorce talks would rattle all global businesses. "We still see a strong UK economy, so overall that's good, and growth in demand in the UK is coming from tourists and domestics," she told reporters. "(But) there is a period of instability as we go through Brexit and I think that's a concern of any global business."

Burberry reiterated it expected to hit its target for 2016-2017 adjusted profit before tax, which analysts expect to come in around 430 million pounds.