Burberry profits fall in 'challenging' market

Fashion firm Burberry has reported a fall in full-year profits and said it expects the "challenging environment for the luxury sector to continue".

Pre-tax profits for the year to 31 March fell to £415.6m, from £444.6m last year. Revenues fell 1% on an underlying basis to £2.5bn.

The firm also said this year's profits would be at the lower end of forecasts.

Burberry plans to revamp its retail operations and is aiming to make annual savings of at least £100m by 2019.

Chinese market

The group, famous for its trench coats and distinctive check pattern, has been hit by a slowdown in Chinese tourists visiting its stores in Europe, and weak demand in Hong Kong.

While group like-for-like sales were down 1%, the company said if results from Hong Kong and Macau were excluded, then sales would have been up by 3%.

The company said Hong Kong, which accounted for 9% of its global retail and wholesale revenue, had suffered a "significantly lower footfall".

It expects the majority of its future growth to come from Chinese customers, who already account for 40% of Burberry's retail sales.

The company said it was focusing on improved service, as well as bespoke products and campaigns for this market.

John Botham of Invesco Perpetual said: "The growth in Chinese consumer spending has slowed and that is an issue for Burberry.

"Another issue is traditionally Hong Kong has been the place Chinese people have travelled to on holiday and increasingly they are travelling to Japan and that is a place where Burberry isn't particularly strong."

British heritage

Burberry said that after relaunching its trench coat and scarves it would now focus on bags, which is an area growing faster than clothing.

In November, it announced it was unifying three lines under a single Burberry label and planned to develop a manufacturing and weaving facility in Yorkshire.

It is aiming to highlight Burberry's British design heritage emphasising that all the products are designed and developed in London.

Burberry chief executive Christopher Bailey said: "While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to drive Burberry's future outperformance, underpinned by strong brand and business fundamentals."

No senior manager changes were announced, despite reports that Burberry was looking to bring in support for Mr Bailey, who has been managing the creative and business side of the company since the previous chief executive, Angela Ahrendts, left in 2014.

'Great brand'

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

It plans to relaunch its online shopping site, and introduce a customer app to drive sales.

Burberry's shares slid 2.71% to 1112p after it said that full-year profits in 2017 would be "towards the bottom of the range of analysts' expectations".

Steve Clayton, head of equity research at Hargreaves Lansdown, said this, together with cost cutting, offered little comfort in the short-term.

"There is a great brand at the heart of Burberry, but it needs stronger Chinese demand to shine.

"The reductions in longer term market growth expectations are disappointing, but reflect the new reality," he added.