Further partnerships and new products are expected to offset any disturbance from Hong Kong going forward.
Despite Hong Kong protests, Burberry results beat market expectations
- Hong Kong troubles not enough to dent numbers which are ahead of expectations and shares respond by rising 9% at the open.
- Burberry produces solid set of first half results with group revenues up 5% to £1,281mn.
- Consumers take well to Ricardo Tisci’s new collection where sales grew by double digits and now account for 70% of in-store sales.
- Partnership with Tencent will open in first half of 2020 and adds further encouragement for future success.
- Recommendation: Slowing global economy is a cause for concern and The Share Centre maintains the ‘Hold’ recommendation.
Despite fears, Burberry seems to be another one of the few good news retail stories at the moment, albeit its target market often has different behavioural characteristics than the rest of the market. It reported another set of good results with consumers taking well to Ricardo Tisci’s new collection, where sales grew by double digits and which now account for 70% of in-store sales. Sales across product groups were generally good, especially in men’s apparel, while sales in the Asia Pacific were strong, except in Hong Kong where the political unrest saw sales decline by double digits. European sales grew by mid-single digits lead by high single digit sales in the UK while the America’s grew by low single digits.
Strong sales led to good profitability but the Hong Kong issues dented mainland visitors from China, resulting in a £14m impairment charge leaving profit growth of 11% to £193mn. Investors will be pleased that overall numbers were impressive despite unrest in Hong Kong, and management maintained their full year 2020 guidance; they expect new products coming on board to more than offset the disturbance to sales from Hong Kong, although this is likely to hit margins by 50 basis points.
The markets had feared a larger impact from Hong Kong which, combined with strong sales elsewhere and a positive outlook, has helped the shares respond well this morning, rising by roughly 9% at the open. The group’s strong social media presence is a core driver of growth and it has announced an exclusive partnership with Tencent to develop “social retail” in China, a concept that blends social media and retail where digital and physical spaces are blended to engage consumers to interact, share and shore. This partnership will open in the first half of next year and adds further encouragement for its future success. While this is a positive update, the slowing global economy is a cause for concern and we thus maintain our ‘hold’ recommendation for investors seeking growth and willing to accept a medium level of risk.
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