Burberry shares fell 5.6% to 1,555p in early morning trading on Friday after the fashion company announced its Q1 2023 sales suffered from the impact of lockdowns in Mainland China in its latest trading update.
The retailer reported a 1% increase in store sales compared to a 90% rise in Q1 2022, with the lockdowns in China contributing to the drag on sales growth.
“Burberry’s first quarter performance has sorely disappointed the market, with concerns around lacklustre growth rates,” said Hargreaves Lansdown analyst Sophie Lund-Yates.
“Mainland China is acting as a serious drag for the group, which is overshadowing successes elsewhere, including increased domestic spending in other markets, which is needed to offset lost tourism spending from Chinese visitors to Europe.”
Burberry highlighted a retail revenue of £505 million against £479 million year-on-year, marking a 5% change in reported FX.
Burberry confirmed comparable store sales outside mainland China rose 16%, with a 47% climb in Europe, the Middle-East, India and Africa (EMEIA) store sales.
It further mentioned a 4% decrease in America against “very tough comparatives”, with reported growth in its outerwear and bags businesses.
However, the fashion group noted double-digit comparable growth in leather goods and outerwear outside mainland China, with good performance in its Lola handbag range and strong performance in its rainwear and jackets segments.
Burberry commented its sales were driven by a programme of brand activators to boost customer engagement, including its Lola campaign, pop-ups and pop-ins and TB Summer Monogram takeovers.
The company also launched its £400 million share buyback scheme over the term, with the total repurchase scheduled for completion by the close of FY 2023.
Burberry announced a target of high-single digit revenue growth and approximately 20% margins in its medium-term.
The firm noted the volatile macro-economic environment, and commented that its mainland China store sales were currently providing promising returns at reopened stores in the region.
The retailer also confirmed it was working to manage the headwind from inflation.
Burberry added it expected a currency tail wind of £190 million in revenue and £90 million in adjusted operating profit in FY 2023 based on FX rates at 11 July 2022.
“The group’s medium-term ambitions for revenue growth are admirable, but exactly how this will be achieved is the big question for newly minted CEO – ex-Gianni Versace leader Jonathan Akeroyd,” said Lund-Yates.
“The heavy lifting for Burberry’s strategic pivot is largely over, and the question now turns to one of delivery.”
“The group’s done very well to forge all these new commercial tools – now it’s time to use them.”