Burberry's Brexit Benefit Not Enough To Offset Asian Woes

Burberry's Brexit Benefit Not Enough To Offset Asian Woes

Retailer's sales in Hong Kong decline by more than 10%

Burberry Group Plc, the British trench coat maker, reported declines in its Asian business and worsening results from its wholesale unit, offsetting a boost in tourist spending on luxury goods in the UK after the Brexit referendum.

Consumer demand remained weak in Hong Kong, London-based Burberry said in a statement, with sales falling by more than 10% in the six months through September. Burberry also lowered its sales outlook for the wholesale business to a decline of about 15% in the second half, worse than the 10% fall-off expected earlier in the year. The shares fell as much as 6.2% in early London trading.

"While retail comparable store sales growth for Q216 was in-line, poor wholesale dragged the results," Mario Ortelli, an analyst at Sanford C. Bernstein, said in a note. Second-quarter retail sales climbed 2% on a comparable basis, marking the first increase in more than a year.

The luxury goods industry is grappling with a slowdown from terrorism and falling demand from free-spending Asian shoppers, prompting companies like Richemont and Hermes to provide disappointing outlooks. Complicating matters, many fashion companies have reshuffled senior management, including Burberry, which appointed Marco Gobbetti as chief executive officer after Christopher Bailey's two-year tenure led to a fall in profits. Burberry said it's been cutting prices in Hong Kong and Macau.

Luxury becomes more affordable in the UK

Spending on luxury items in the UK is rising as sterling's fall has made Burberry's scarves and bags cheaper for shoppers visiting from China and other countries. Sales rose by more than 30% in the UK, the company said, boosted by demand for its runway rucksack and the new Buckle bag collection.

"The UK stood out as the main positive in the quarter," Rogerio Fujimori, an analyst at RBC Capital, said in a note.

Burberry also said the weakness of sterling will add as much as 125 million pounds ($153 million) to full-year profit, based on recent exchange rates.