Burberry’s China caution was right – but the recovery may be short-lived

 
Elizabeth Fournier
Fashion is cyclical. Children of the 1990s can look back in horror at the realisation that the flares they insisted on wearing were first sported by their parents in the 70s, while 1980s babies didn’t fare much better with re-hashed 50s stilettos and big hair.

Luckily for Burberry, stock market trends come around a lot more often, with yesterday’s upbeat statement from the firm sending it back to the top of the leaderboard – just four months after a profit warning knocked a fifth off its share price.

The good news is that China is spending again. After growth slowed last quarter, sales in Asia Pacific were up 16 per cent on an underlying basis – with like-for-likes rising by unspecified “double digits”.

Looking at the recent slew of positive data coming out of China, perhaps Burberry chose the right moment to spook investors. Since September the country has painted a positive picture of its economy, with exports growing 14.1 per cent year-on-year last month and consumer confidence among bank cards’ users rising.

But there’s a potential iceberg looming in Burberry’s waters – that data trend could also go into reverse. Chinese GDP estimates due out on Friday are expected to be the weakest since 1999. Burberry sales in emerging markets and the US may be growing, but with weakness in core Europe – where Italian wholesale accounts have closed – the firm can ill afford another China scare. Perhaps it’s time to stop saving for that Burberry mac and dig those flares out of the back of your cupboard – trends can come back faster than you think.