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Luxury fashion retailer Burberry's profits boosted by plunging pound

Published 13/07/2016

The FTSE 100 index was down 10.3 points to 6666.2
The FTSE 100 index was down 10.3 points to 6666.2

Luxury fashion retailer Burberry stormed ahead on the London market after it drove home better-than-expected results and received a boost from the plunging pound.

The firm said that like-for-like sales slipped 3% in the first quarter, but the pound's fall in value since the EU referendum result meant Burberry's profits would be boosted to the tune of £90 million, up from the £50 million benefit pencilled in in April.

The retailer's share price stepped up 6% or 76p to 1279, but it was not enough to lift London's top flight index, which edged down 10.3 points to 6670.4.

Steve Clayton, head of equity research at Hargreaves Lansdown, said: "Longer term we still like Burberry, the business has a robust balance sheet and throws off a lot of cash.

"Luxury goods have been a good sector to be exposed to, because clients are prepared to pay handsomely for that special item, leading to good margins most of the time.

"Moreover, while luxury consumers are not risk-free clients, they do tend to be resilient, because wealth is typically more durable than income."

The London market appears to have paused for breath after a flurry political announcements, with Theresa May set to become Britain's next prime minister.

Sterling was 0.5% lower against the dollar at 1.31, as it struggled to hold onto gains in the previous session when it rose by as much as 1.8% to 1.32 US dollars following confirmation Mrs May would take the keys to 10 Downing Street.

The pound was also 0.8% down against the euro at 1.18 euro, as the market turned its attention to Thursday's interest rate announcement from the Bank of England, with many economists expecting governor Mark Carney to slash interest rates.

Economists at Hargreaves Lansdown said it was "now probable" rates would be cut, with financial markets pricing in a reduction from 0.5% to 0.25%.

They said it was possible rates may be lowered further to zero in August, while the Bank is also expected to pump cash into the economy to bolster flagging growth and contain the fallout of the Brexit vote.

Across Europe, Germany's Dax was off 0.3%, while the Cac 40 in France was flat.

The price of oil sunk 4.7% to 46.19 US dollars a barrel amid fresh concerns over the international oil glut and its impact on global economic growth.

In stocks, h ousebuilder Barratt Developments saw its share price take a hit despite stating that profits would rise 20% this year.

Investors took flight after the firm warned that it was too early to say what the economic impact of Brexit would be.

Since the vote, Barratt's share price has fallen more than 25% as economists warn of a slowdown that could end up hitting the housing market.

Shares were down 2%, or 8.5p, to 404.8p.

Away from the top tier, d iscount retailer Poundland gave the green light to a takeover approach from South African retailer Steinhoff International.

The firm agreed to a £597 million takeover deal despite rejecting an undisclosed cash offer from Steinhoff last month.

Shares were up 24.8p to 220.8p

The biggest risers on the FTSE 100 Index were Burberry up 76p to 1279p, Antofagasta up 18p to 504p, Rolls-Royce up 22.5p to 746.5p, Centrica up 5.2p to 232.7p.

The biggest fallers were GKN down 8.7p to 275.3p, ITV down 5.8p to 184.9p, Berkeley Group down 72p to 2620p, Schroders down 68p to 2507p.

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