Burberry Quarterly Sales Fall Short of 2019, Hitting Shares

(Bloomberg) --

Burberry Group Plc’s sales remained below 2019 levels despite a quarterly jump, showing the British brand is trailing some luxury peers in recovering from the pandemic. The shares fell as much as 10%.

Comparable store sales in the three months through March soared 32%, the company said in a statement Thursday. That was in line with its own forecast. Revenue was still 5% below the level of two years earlier.

Sales at luxury rivals LVMH and Hermes International both exceeded 2019 amounts last quarter.

The performance shows “there is still work to do” at Burberry, according to Luca Solca, analyst at Sanford C. Bernstein. The company is cutting the number of promotions as it seeks to preserve its upscale image among consumers looking to splurge on quilted Lola bags or Barn jackets.

That could make for tough sales comparisons against previous periods for Burberry, one of the first luxury companies to drop its financial guidance last year when Covid-19 shuttered stores.

The fashion house said its operating margin could be squeezed in the current fiscal year by increased investment in the business and higher operating expenses. Burberry plans to spend as much as 190 million pounds ($267 million) on store refurbishments, digital offerings and information technology. Citigroup analyst Thomas Chauvet described the capital spending plans as “legitimate investments in future growth.” Burberry also said it’s reinstating a dividend at the pre-pandemic level of 42.5 pence a share.

Demand at U.K. stores is “showing good promise” after they reopened on April 12, Burberry Chief Operating and Financial Officer Julie Brown said on a call with reporters. The brand created a pop-up store at luxury department store Harrods for its Olympia bag, she said. Still, Brown warned that foreign shoppers may not return for years with international travel “very muted.” Two-thirds of U.K. sales relied on foreign buyers pre-pandemic, she said.

Burberry Revenue Recovers, Though More Investment Needed: React

Revenue in Europe, the Middle East, India and Africa in Burberry’s fiscal fourth quarter was down 26%, making it the only region still suffering from a slowdown.

Luxury brands are betting more on China, which managed to control Covid-19 more quickly last year. Burberry opened a store with the local tech giant Tencent in Shenzhen last summer, mixing physical and digital experiences. Comparable store sales in Asia Pacific soared 75% in the quarter, led by China and South Korea.

The brand is having to navigate a tense relationship with China authorities amid calls to boycott Burberry products in retaliation for comments the company made on cotton sourced in the Xinjiang region. That led to the termination of a partnership with Tencent for its Honor of Kings video games.

A company spokesman said the boycott calls had “a limited impact” on sales in the country.

Burberry Falls as Margin Guidance Overshadows Sales: Street Wrap

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