Burberry looks upmarket for growth as Chinese spending slows down and the UK suffers

Alys Key
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Burberry x Cara Delevingne Christmas Party, London
Burberry will expand its range from spring with some products at higher price points (Source: Getty)

Burberry missed some analyst expectations this morning, revealing that performance in the UK was impacted by the pound's recovery.

The figures

Retail revenue in the three months to 31 December 2017 fell by two per cent on a reported basis to £719m compared to £735m in 2016.

But on an underlying basis, sales grew by one per cent, while comparable store sales were up two per cent.

The figures were at the lower end of analyst expectations.

The company said it was on-track to hit its operating profit guidance for the year, as well as cumulative cost savings of £60m.

Shares in the company fell 6.7 per cent in early trading.

Why it's interesting

Sales in the UK declined by a high single digit during the quarter compared to last year.

This was largely put down to unfavourable comparable figures after the UK experienced a major influx of high-spending tourists in the second half of 2016. Since then, the pound has crept up, dampening the luxury spending boom somewhat.

On a call with journalists this morning, chief operating and financial officer Julie Brown said that headwinds on Chinese consumers had also impacted performance, both in the local market and in others where Chinese shoppers visit.

She added that the company expected a positive impact from "raising the range" as part of its declared strategy to target the very top-end of luxury shoppers.

"We don't mean that the same product will be priced at a higher price," she said. "What we will see is the opportunity to extend the range."

Leather goods will be a major area for extending into higher price points, but Brown said there was no expected change of price for the iconic trench coat.

But in the third quarter, consumers opted for the lower end of the range.

There was no update today on who will replace Christopher Bailey as chief creative officer. Brown said that the company had made progress on the search and that Bailey will design the collection for fashion week in February.

Read more: Royal Mail and Saga director Orna Ni-Chionna is joining Burberry

What Burberry Said

Chief executive officer Marco Gobbetti said: "We are making good progress embedding our strategic vision into the organisation and remain on track to meet our full year profit target. We are building on strong foundations and are fully focussed on the successful delivery of our multi-year plan to position Burberry firmly in luxury and deliver long-term sustainable value."

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