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Burberry profits dip 10% amid 'challenging environment'

Published 18/05/2016

Last month Burberry said fourth-quarter sales had been hit by lower spending by Chinese tourists in continental Europe
Last month Burberry said fourth-quarter sales had been hit by lower spending by Chinese tourists in continental Europe

Fashion retailer Burberry has said adjusted full-year pre-tax profits crashed 10% to £421 million as the company flagged a challenging trading environment for its luxury products.

Revenue fell 1% to £2.5 billion at the group, which is famous for its trench coats and check scarves.

Chief executive Christopher Bailey said: "While we expect the challenging environment for the luxury sector to continue in the near term, we are firmly committed to making the changes needed to drive Burberry's future outperformance, underpinned by strong brand and business fundamentals."

Mr Bailey, who is also chief creative officer, said the group would slash £100 million in costs to help offset difficult trading.

Last month Burberry said that fourth-quarter sales had been hit lower spending by Chinese tourists in continental Europe and a collapse in the Hong Kong luxury market.

The retailer makes around a third of its sales from the Asia Pacific region and has been hit hard as Chinese consumers have reined in their spending, particularly in Hong Kong, traditionally a prime shopping destination for Chinese consumers.

Mr Bailey added: "We continue to see significant opportunities ahead of us and have put ambitious plans in place to increase future revenue, enhance productivity and create a more efficient organisation."

The company also warned that full-year profits in 2017 would be "towards the bottom of the range of analysts' expectations".

Burberry said it plans to simplify its product range and focus on key items.

Analysts said the disappointing results reflect a "new reality".

Steve Clayton, head of equity research at Hargreaves Lansdown, said: "The travelling Chinese luxury consumer is clearly still reluctant to come out and spend money at the moment, and as long as that remains the case, things are likely to remain tough for Burberry.

"There is a great brand at the heart of Burberry, but it needs stronger Chinese demand to shine. The reductions in longer term market growth expectations are disappointing, but reflect the new reality."

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