China Lockdowns Weigh on Burberry’s Fourth-quarter Growth in 2022

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LONDON — Lockdowns in China dented retail sales in the fiscal fourth quarter, said Burberry as it reported double-digit gains in full-year revenue and adjusted operating profit for the full year ended April 2.

Burberry said same-store sales grew 7 percent in the fourth quarter, compared with 5 percent in the previous quarter, adding that COVID-19 lockdowns had “weighed on performance” in March.

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The company said business in China fell 13 percent in the fourth quarter, but the decline was offset by an overall 20 percent growth in other regions. Demand in the fourth quarter was particularly robust in the U.S., while business also picked up in Europe and the EMEIA region, Burberry said.

The company added that its outlook for the current year is dependent on the impact of COVID-19 and the rate of recovery in consumer spending in mainland China. Before the pandemic, around 40 percent of Burberry’s sales were from China, or Chinese tourists buying abroad. The region and its tourists now represent around one-third of the business.

Julie Brown, chief operating and chief financial officer at Burberry, said that 40 percent of the brand’s retail network, including e-commerce, is inactive in China due to the lockdowns which started in March. She added that trading in Hong Kong was currently “very challenging” due to the lack of Chinese tourists in the region.

Burberry is remaining upbeat despite the difficulties and plans to invest further in China and position itself for a strong rebound in sales when the lockdowns lift.

Burberry maintained its guidance of high-single-digit revenue growth and “meaningful margin accretion” at constant exchange rates in the medium term.

Burberry also announced it would ban exotic skins from its collections going forward.

March also saw the arrival of Burberry’s new chief executive officer Jonathan Akeroyd, who was appointed last year to replace Marco Gobbetti, who has become CEO of Salvatore Ferragamo. Akeroyd had previously been CEO of Versace in Milan.

Akeroyd said Burberry has made “great progress” over the last five years. “I look forward to setting out my plans for building on these strong foundations and accelerating growth at the interim results in November,” he said.

Full-year revenue in the 53 weeks ended April 2 rose 21 percent to 2.83 billion pounds.

Same-store sales grew 18 percent in the year, while full-price same-store sales were up 24 percent compared with the prior year. As reported, Burberry has been on a mission to eliminate discounting and improve sales margins, and is keeping a close eye on inventory.

Burberry noted that full-price sales of outerwear and leather goods grew 39 percent and 28 percent, respectively, compared with two years ago when the company was still discounting.

Adjusted operating profit, Burberry noted, was ahead of guidance, rising 32 percent to 523 million pounds.

Reported operating profit edged up 4.2 percent to 543 million pounds.

Looking ahead, Burberry said it was “actively managing” the headwinds from inflation which, at 9 percent, is at its highest level in the U.K. in 40 years. The company said for fiscal 2022-23, it is expecting a currency tailwind of 159 million pounds on revenue, and 92 million pounds on adjusted operating profit.

Shares were broadly flat during the day, closing at 15.84 pounds on the London Stock Exchange on Wednesday.

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