Burberry sales growth hit by China slowdown

Bailey said: “The external environment became more challenging during the half, affecting luxury consumer demand in a few of our key markets”.

In China, consumer confidence has also been shaken by the recent stock market rout. Retail revenue was up 2% on an underlying basis to GBP774m, with comparable store sales rising 1%, driven by double-digit growth in the EMEIA region.

The group said mainland China comparable store sales dropped only slightly in the second half, but Hong Kong has been hit hard as it has not only seen a drop in spending from Chinese visitors it has also seen a fall in tourist numbers following last year’s lengthy pro-democracy protests.

London shares rose in early trading although downbeat figures from luxury fashion retailer Burberry limited gains.

Fairweather noted growth from Chinese customers was significantly higher in continental Europe, where Burberry’s presence is less developed than the UK.

Shareholders have spent the past 24 hours evaluating whether Burberry was suffering from one bad quarter or whether this is the beginning of a downward trend.

And the devaluation of the yuan and the Federal Reserve’s decision to hold off from raising interest rates have added to concerns about growth, with LVMH Moet Hennessy Louis Vuitton SE this week attributing slowing fashion and leather-goods sales to stock market volatility. Gucci owner Kering publishes third-quarter sales next Thursday.

The downtrend in Burberry’s shares since February had already wiped as much as 32% off the price.

Even though UBS reduced its target price, it reckoned the root of the slowdown was not brand-specific, but had been exacerbated by Burberry’s regional exposure.

Analysts expect this to lead to a growing cash balance, with consensus forecasts suggesting a steady rise towards a billion pounds of net cash in the years ahead.

In September 2012, Burberry was to first to warn about a major slide in Chinese demand in response to the country’s anti-corruption campaign.

The firm said accelerated actions to control costs were expected to minimise the impact on profit for its 2015-16 year and it expected to meet the average forecast of those analysts who have recently updated forecasts, which is 445 million pounds.

“Burberry is in an interesting position as a result of its global expansion with exposure to a few of the most volatile currencies out there; everyone is focused on the yuan but the moves in the Russian rouble, South Korean won and the euro will have made trading conditions very hard”.