Burberry Falls as China Weakness Hangs Over Tisci's New Looks

(Bloomberg) -- As Burberry Group Plc awaits a boost from new designer Riccardo Tisci’s first collections, investors are punishing the U.K. trench-coat maker for sluggish sales in China.

The shares slumped early Thursday after the company reported sales on the mainland that are well behind luxury rivals’ robust gains. Overall guidance for the coming year was unchanged, disappointing investors hoping for a quick fix from Tisci’s new looks.

While sales in the previous year were in line with expectations, the outlook suggests earnings before interest and taxes will decrease by a low single-digit percentage, Morgan Stanley analyst Elena Mariani said in a note.

Tisci has helped put Burberry back in the fashion spotlight as new CEO Marco Gobbetti seeks to reinvigorate growth. While the company said his designs have drawn an encouraging reaction from consumers, it’s too early to measure commercial success as most products didn’t arrive in stores until February.

Sales of runway fashions are up by double-digit percentage since then, Chief Financial Officer Julie Brown said on a call. But that represents only about 10% to 15% of the product lineup, the company said.

Burberry moved to appease investors who’ve stuck out the wait as the brand seeks a turnaround, announcing a share buyback of 150 million pounds ($193 million) even after net debt rose during the year.

While China delivered low-single-digit percentage sales growth in the latest year, the company said consumers are shifting spending to the mainland as the country’s consumers buy more fashion items at home rather than elsewhere in Asia. Other luxury brands, led by Kering SA’s Gucci, are seeing double-digit gains from China.

Worldwide comparable retail sales in the year ended March 30 rose 2%, roughly in line with analysts’ average estimate, according to data compiled by Bloomberg. The shares fell as much as 4.9% in London, the most in six weeks.

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