Burberry warns of 'challenging' year in luxury market

Luxury fashion firm Burberry has warned of "challenging" market conditions ahead and reported that sales fell 1% in the final six months of the year.

Burberry said slowing demand from US wholesale customers and "cautious" ordering by customers elsewhere was behind the gloomy outlook.

It is forecasting a 10% decline in sales at its wholesale business in the current financial year.

Profits for the year will be at the lower end of expectations, it said.

Burberry's business is split into wholesale, which sells clothes to other retailers, and retail, which consists of its own branded outlets.

Retail woes

Chinese customers account for 40% of Burberry's retail sales and cutbacks by them have hit Burberry.

In Hong Kong, where many mainland Chinese travel to shop, Burberry's sales tumbled by more than 20% in the fourth quarter.

That is the third quarter in a row that Burberry has seen sales in Hong Kong decline by more than 20%.

A slowdown in sales in continental Europe was also blamed on falling demand from Chinese tourists.

Overall the retail business reported a 5% decline in like-for-like sales in the fourth quarter, which ended 31 March.

However Burberry expects total retail sales to grow this year, because of new store openings.

"In an external environment that remains challenging for luxury, we continue to focus on reducing discretionary costs and are making good progress with developing enhanced future productivity and efficiency plans," said chief executive Christopher Bailey in a statement accompanying the results.

Burberry shares closed down 3.6% at 1296p.