Burberry has cheered investors with a bounce in troubled China.
Burberry's revenue inched up in the third quarter by one per cent to £603m, with like-for-like sales flat year-on-year, in line with analyst expectation. That compares to four per cent decline in the previous quarter.
Shares in the designer brand jumped as much as four per cent as markets opened.
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Why it's interesting
A slowdown in luxury sales in China has been a worry for Burberry, and others, but domestic customers returned to growth in all regions, Burberry said, including Asia. However, currency headwinds from Hong Kong and Macau "masked an otherwise stronger performance" Burberry said.
What Burberry said
"In a tougher environment than expected, our sustained focus on growth and cost control drove a number of positive results over the quarter, including the outperformance of digital and a return to growth in mainland China. While Burberry was impacted by the ongoing challenges facing the luxury sector, headwinds in Hong Kong and Macau masked an otherwise stronger performance in many markets," said chief executive Christopher Bailey.
"The outlook for our sector remains uncertain as the consumer and environment evolve. However, we are anticipating and responding to these changes through an intense focus on new growth opportunities and the acceleration of our productivity and efficiency agenda."
What analysts said
"Further weakness in the Chinese Yuan means that Hong Kong and Macau have seen further declines in luxury sales, and Burberry's exposure here means that it is especially vulnerable. Furthermore, we estimate that 38 per cent of Burberry's global sales are to Chinese customers versus the industry norm of 30 per cent so further Yuan weakness remains a serious concern. We understand that Japan remains relatively positive [sales up 50 per cent] but Burberry's sales exposure to this market is just 2 per cent," said Liberum.
Stemming declines previous decline in China is good news, however, continued economic troubles in the region in 2016 the question is whether that momentum will continue.