Burberry Holds Outlook Steady Amid China Lockdowns

Burberry Group Plc held its medium-term forecast steady despite severe lockdowns in parts of China in April and May that hurt demand for luxury products.

The British fashion brand continues to target high-single digit revenue growth and a 20 percent margin at a constant currency in the medium term, as it “actively manages” the impact of lockdowns in China and soaring inflation in its home UK market, the company said in a statement Friday.

Burberry shares declined about 6 percent in early trading.

Known for its trench coats and distinctive check pattern, Burberry is more exposed to China than many of its rivals and derives about a third of its sales from the country. Its home market, the UK, is also battling the worst inflation in 40 years with energy and wage bills soaring.

Comparable store sales at the British fashion brand rose 1 percent during the April to June quarter, Burberry said. When mainland China was excluded, comparable sales were up 16 percent, showing the impact of the lockdowns. Burberry said the performance since stores in China reopened in June has been “encouraging.”

Concerns over Covid-19 haven’t gone away with the number of cases in Shanghai rising again and residents fearing they could head back into lockdown.

In an attempt to lessen its reliance on the China market, Burberry renewed its focus on high-spending clients in Europe and the Middle East with comparable sales in the region rising 47 percent during the period. It also recorded double-digit growth in its leather goods and outerwear divisions, excluding China.

Burberry’s new chief executive officer Jonathan Akeroyd took over in March. The former head of Versace is expected to follow the work of predecessor Marco Gobbetti, shifting Burberry’s prices higher, reducing third-party distribution and eliminating discounts. The brand is also betting on the crucial leather-goods category which has released notable models like the Olympia handbag.

Burberry’s performance and earlier results Friday from Richemont could set the tone for the wider sector since they’re the first to report a trading update for the period. Cartier-owner Richemont said first-quarter sales rose 12 percent after demand rebounded across Europe and the US, offsetting the slowdown in China where sales fell 15 percent.

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