Burberry reported a worse than expected 9 per cent decline in same-store sales during the third quarter despite strong growth in the Asia-Pacific region and more sales at full price.
The British luxury goods group, which is moving further upmarket under Italian chief executive Marco Gobbetti, said the revenue decline reflected a move to reduce markdown levels and trading restrictions affecting more than a third of stores worldwide.
Finance director Julie Brown told reporters that the decision to reduce discounts in a key trading period had “a high single-digit impact on comparable sales growth”, compounded by sharply reduced tourist traffic to cut-price outlets, such as the UK’s Bicester Village.
Full-price sales, which the company regards as the more important yardstick, rose by “high single digits” and wider financial guidance was unchanged.
That prompted a 4 per cent rise in Burberry’s share price in early trade, despite the overall sales miss.
Thomas Chauvet at Citigroup said better full-price sales would lead to better gross margins that, combined with cost savings, could lead to full-year profit forecasts rising by up to 10 per cent.
There was also notable “triple-digit” growth in digital sales in China, even though most stores in the country have long since reopened.
Ms Brown said ecommerce in China was growing strongly but from a much lower base. “Chinese consumers still prefer luxury contact in stores. They prefer the luxury experience even though they are digitally savvy.”
On average across the industry, about 10 per cent of luxury goods sales were made online before the pandemic, with penetration greatest in the US and lowest in Asia.
Overall sales growth in Asia was 11 per cent, but there were falls of 8 per cent in the Americas and 37 per cent in Europe and the Middle East, reflecting much lower tourist demand and higher levels of store closures.
Under Mr Gobbetti and his chief creative Riccardo Tisci, Burberry has forged a look that combines its British heritage with streetwear influences that appeal to younger consumers. It has also expanded its offering of leatherwear, especially bags.
But the pandemic has hurt sales and the shares now trade only marginally above the level when Mr Gobbetti took over in July 2017.
Bernstein analyst Luca Solca said the trading environment remained “exceedingly difficult for companies in transition” and contrasted Burberry’s performance to that of Swiss luxury goods group Richemont, whose third-quarter sales grew 5 per cent at constant exchange rates.
Ms Brown said Burberry welcomed the UK/EU trade deal signed late last year, but that it was facing some issues with the “complex and demanding” rules of origin.
“Around 10 per cent of current EU-sourced goods do not meet the requirements,” she said. “We are working on dealing with some of the operational issues.”
The costs of mitigation measures such as reducing movements of raw materials and finished products across borders and establishing bonded warehouses are estimated to be in the “low millions”.
The company expected tourist arrivals to pick up in the medium term as vaccines were rolled out; development of the AstraZeneca/Oxford vaccine was partly funded by a donation from Burberry, although Ms Brown declined to disclose its size.
Get alerts on Burberry Group PLC when a new story is published