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Burberry shares fall amid warnings pound surge could halt sales upturn

By Staff Reporter

Luxury fashion house Burberry has seen shares come under pressure amid fears the pound's snap election rally will bring its sales rebound to a halt.

Shares in the FTSE 100-listed group tumbled as much as 8% at one stage after it revealed slowing sales growth and as retail experts warned its recent bounce-back could " disintegrate " if the pound continues to surge towards the June polling day.

Sterling has jumped to its highest level since the start of October in the wake of Prime Minister Theresa May's surprise announcement on Tuesday to hold a general election in June.

Analysts said this could put paid to Burberry's sales turnaround, which has been largely driven by the pound's plunge since last June's Brexit vote.

Tom Gadsby, an analyst at Liberum, said: "News of a snap UK election has seen a strong rally in the pound.

"Should this continue towards polling day, Burberry's own, foreign exchange-driven rally could disintegrate."

He added that the slowdown in same-store sales growth, to a lower-than-expected 2% in Burberry's final quarter from 3% the previous three months, would also give the market "pause for thought".

Burberry's trading update revealed that tough conditions in the United States offset ongoing "exceptional" trading in its UK home market.

The group, famous for its trench coats and check scarves, has been boosted as shoppers from the US and Asia have flocked to Britain to take advantage of the plunging pound to snap up luxury goods at a knock-down price.

Total retail revenues over Burberry's second half jumped 19% to £1.3 billion thanks to the weakness of sterling.

The group added that the pound's plunge was set to flatter underlying full-year retail and wholesale profit by around £130 million, up from the £120 million pencilled in earlier this year.

But this was before the latest sterling rally.

Burberry also confirmed it was continuing to keep its £50 million plans for a flagship manufacturing and weaving facility in Leeds on hold.

Chief finance officer Julie Brown said the group was still committed to Yorkshire, but was "taking a moment to think through" its plans for a new facility in Leed's South Bank.

It first revealed it was pausing plans for the site last July in the wake of Brexit uncertainty.

Burberry's latest trading update showed that the UK led double-digit sales growth across the Europe, Middle East, India and Africa region in its second half, with strong demand from both tourists and domestic customers.

Trading was also robust in China, where second half sales rose by a "high single digit percentage", but sales slid in the US and Hong Kong.

Total revenues fell 1% in the group's final six months with the fillip from the weak pound stripped out as it suffered from the falling US sales and its move to licence out its beauty range as part of a new partnership with make-up brand Coty.

The group has been leading a turnaround plan that has included simplifying the product line, revamping its digital store and cutting costs.

Chief executive Christopher Bailey is also stepping down to become president and chief creative officer as part of the overhaul and will be succeeded by Marco Gobbetti in July.

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