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Burberry reinstates dividend but growth falters

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Burberry has reinstated its interim dividend and restarted its share buyback programme after first-half profits beat forecasts, but its shares fell back on concerns over slowing sales growth.

Revenue at the UK’s only major luxury goods group was £1.12bn in the six months to September 25, with full-price same-store sales 37 per cent ahead of last year and 18 per cent up on the same period pre-pandemic in 2019.

Adjusted operating profit was £196m, ahead of a consensus figure of £181m compiled by the company. That allowed Burberry to reinstate a half-year dividend of 11.6p, slightly higher than the payout two years ago, and announce a £150m share buyback for the second half.

But shares in the company fell as much as 9 per cent in early trade in London as investors took fright at an apparent slowdown in sales momentum during the second quarter and the lack of any upgrade to full-year forecasts.

Same-store sales in the Asia-Pacific region were down 5 per cent, having risen 27 per cent in the first quarter, and Citi’s Thomas Chauvet said a flat second quarter overall had disappointed analysts who had on average predicted 3 per cent sales growth.

Finance director Julie Brown said the Asian sales slip was a blip caused by the reimposition of travel restrictions in some parts of China and that trading was back at more normal levels in September and October.

She added that first-half sales in China were up 30 per cent and full-price sales 40 per cent higher, with a revamped product offer attracting younger customers.

Chinese consumers account for about two-fifths of Burberry’s overall revenue. In the past, much of this has come from wealthy tourists holidaying in cities such as New York, London or Paris but travel bans during the pandemic have meant a higher proportion has originated in China itself.

“We are definitely seeing more localised spending across the world as a result of Covid restrictions,” said Brown. “Spending patterns do differ. Chinese in London make a beeline for traditional Burberry trenchcoats but in China they are more focused on leather goods.”

However, she denied this left Burberry more vulnerable to policy shifts such as President Xi Jinping’s “common prosperity” push to create a more equitable society.

“We see [common prosperity] as a good thing, it will help this industry,” she said, adding that Burberry’s customer base “tends to be upper middle class” rather than the super-rich.

Across the first half, revenue growth was strong in the Americas, where sales were up 92 per cent against last year and 38 per cent ahead of the year before. Europe recovered strongly vs last year but is still 31 per cent below two years ago.

Burberry is increasingly focused on full-price sales as it seeks to position itself further upmarket and lift its profit margins closer to the levels of French and Italian peers.

But its shares have underperformed the luxury goods sector this year and trade at a lower multiple of profits than those of peers. The shift to full-price sales has temporarily reduced revenue growth while the departure of chief executive Marco Gobbetti, the architect of its shift upmarket, also unsettled investors.

Gobbetti will leave at the end of the year. His replacement, Gianni Versace chief Jonathan Akeroyd, will join in April 2022.

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