Burberry Says Viral Epidemic Devastates China Sales
Burberry Group Plc scrapped its financial guidance for the year, warning that the coronavirus epidemic is cutting sales by three-quarters or more at stores in China.
The British fashion house said Friday that it has closed 24 of its 64 shops on the mainland. Chinese department stores selling the company’s products have also seen significant declines in customer visits, and many have reduced hours as the authorities imposed quarantine measures. The shares fell as much as 4.8% Friday in early London trading.
Over the past two weeks, sales at mainland stores that remain open have declined 70% to 80%, Chief Financial Officer Julie Brown said. Because of uncertainty over how long the outbreak will last and how much it will spread, the company said it can’t stand by previous forecasts for the fiscal year ending in March.
It’s one of the most dramatic illustrations so far of the effects of the virus on global brands, with the luxury-goods industry particularly exposed. Cosmetics companies L’Oreal SA and Estee Lauder Cos. said Thursday that they expect temporary setbacks in China.
Burberry’s warning is likely “the first of a string of painful announcements,” Sanford C. Bernstein analyst Luca Solca said by email. The updates will probably be “even more painful for those companies in transition.”
The hit to sales comes at a sensitive time for the trenchcoat maker, which has embarked on a style revamp under new designer Riccardo Tisci. Burberry said the response to his new lines has been favorable and it’s sticking with plans to update stores and roll out new products with his aesthetic despite the virus.
“We’re protecting investment in the business as we see this as a transitory issue,” Brown said in an interview.
In January, just before the coronavirus exploded into an epidemic, Burberry raised its forecast for full-year sales from roughly flat to low single-digit percentage growth. Brown said that guidance is now out of date.
Burberry’s warning might imply a hit to fiscal year earnings of about 5%, according to a note from Jefferies. That assumes the disruption will cut sales to Chinese nationals by 50% to 60% over the next two months, resulting in a 3% drop in 2020 sales, analysts Elena Mariani and Edouard Aubin said in the note.
Like many luxury companies, Burberry is highly dependent on China’s shoppers, who account for about 40% of sales. About half of that spending occurs at home, with the rest coming during trips abroad. Even before the virus emerged near the end of last year, Burberry was reeling from the effects of anti-Beijing protests in Hong Kong, which cut sales in the territory by half over the Christmas quarter.
The spread of the virus and the travel restrictions, including the cancellation of many flights from Europe and North America to China, have jeopardized a Burberry fashion show scheduled for Shanghai in April. A spokesman said the company is monitoring the situation.
While consumers continue to shop online from home, quarantine measures are complicating deliveries, reducing the potential benefit, said Brown, the Burberry CFO. Chinese shoppers are still spending abroad, she said, “but with the widening travel restrictions, this will worsen.”
Burberry said it will issue a sales update by mid-April, ahead of full results scheduled for May. The shares were down 1.8% at 8:45 a.m. and have lost 10% this year.
©2020 Bloomberg L.P.