Burberry shares dive after China troubles hit sales

A weakening demand for luxury, particularly in China, has prompted Burberry to predict a fall in annual profits – prompting a 12% dive in its share price during early Thursday trading.

A sharp sales slowdown in China and Hong Kong led Britain’s Burberry (BRBY.L) to miss forecasts for first-half sales growth and warn of an increasingly challenging environment for luxury sales.

The shares have lost almost a quarter of their value of the year, weighed down by the economic slowdown in China, one of its biggest markets.

Chinese shoppers, which account for 30-40 percent of Burberry’s global revenue, have grown increasingly cautious this year after the country’s economy weakened, its currency devalued and its stock market tumbled.

Burberry said its retail revenue was up 2% on an underlying basis in the first half to the end of September to GBP774.0 million, with like-for-like sales growth of 1.0% in the period.

Group like-for-like sales rose by just 1% – hurt by declines across the firm’s Asia Pacific region.

Halifax-born Christopher Bailey, chief executive and chief creative officer of Burberry, said: “The external environment became more challenging during the half, affecting luxury consumer demand in a few of our key markets”. The company today vowed to take “accelerated actions” to minimise the impact on the group’s full-year profits. Looking further ahead, we maintain our focus on – and confidence in – the long-term growth opportunities for our business across channels, regions and product categories’.

The group plans to push further with cost savings, such as reining in recruitment, reducing travel expenses and other discretionary costs, and keeping a tight control on marketing spend.

Beaufort Securities’ sales trader Basil Petrides expected the FTSE to be choppy while earnings season was underway, and said he would look to sell FTSE positions in case the index fell back to the 6,250 point level.