Burberry warns next year's profits will be at bottom of City expectations

Burberry’s total retail sales remained flat at £1.06bn in the six months to March 31, but its like-for-likes fell 2% caused by a 5% slump in the fourth quarter.

The luxury retailer’s drop in like-for-likes was triggered by continued poor sales in Hong Kong, where like-for-likes tumbled 20% for the third consecutive quarter.

Chief financial officer Carol Fairweather attributed the drop in sales in Hong Kong to an ongoing fall in domestic tourism.

The finance boss said the retailer would focus on other areas of Asia – including Beijing and Japan – to offset the decline.

“Japan is long-term strategy for us, we’ve talked about getting between six and eight mainline stores and 40 to 50 concessions there as we may be missing out the tourist sales opportunity in the region at the moment,” said Fairweather.

“Our focus is on building the right store portfolio there for the long term.”

Burberry operates seven stores in Hong Kong, but Fairweather did not rule out the possibility of reducing the luxury retailer’s store footprint in the region in the year ahead.

“As those stores come up for rent renewal we will evaluate what the sensible thing to do in that market is – we are confidently evolving our store portfolio and we will evaluate it at the time as we do around all our regions,” Fairweather stated.

Burberry has reported that the full-year profit for the current financial year will be in line with current expectations after the retailer cut £25m of discretionary spending on new hires, travel and expenses.

Chief executive Christopher Bailey said: “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.”

However, the retailer has warned that its next year’s pre-tax profit would “be around the bottom of the range of analysts’ expectations” owing to the ongoing decline in tourism in Hong Kong as well as continental Europe.

Fairweather attributed this decline in tourism owing to the ongoing reluctance of Chinese tourists to travel to Europe following the Paris terror attacks last year, which she said has had an ongoing effect on trading and tourism patterns sector wide.

The fashion retailer also said trading in the UK and Middle East “remained difficult”.

Online sales increased across all regions, driven by mobile purchases.

Burberry reported wholesale revenue of £330m, down 1% year on year.