Burberry warns over cost hit from no-deal Brexit
The luxury fashion brand said its tariff costs could rise by tens of millions of pounds.
Luxury fashion brand Burberry has warned it could face tens of millions of pounds in extra tariff costs if the UK crashes out of the EU without a deal.
Finance chief Julie Brown admitted a no-deal Brexit would be very costly and “complex” to manage for the FTSE 100 group.
She said it would lead to extra tariffs and disrupt its supply chain, impacting the movement of materials, samples and clothing between the UK and Europe.
If we had a no-deal scenario we would be subject to WTO rules and absent any mitigating actions our duty costs would increase materially Julie Brown, Burberry chief financial officer
But she stressed the group would look to take actions to offset any hit.
“If we had a no-deal scenario we would be subject to WTO rules and absent any mitigating actions our duty costs would increase materially, in the low tens of millions of pounds,” said Ms Brown.
Burberry makes its distinctive trenchcoats in Yorkshire, while it imports other items from Europe.
The comments came as Burberry reported back on its Christmas trading, posting a 1% rise in like-for-like global sales over the 13 weeks to December 29.
Shares lifted nearly 2% as it brushed aside fears of a slowdown in China, with sales in the country enjoying a “mid-single” digit increase over the firm’s third quarter.
It comes amid slowing growth in China and fears of a sharp correction as the threat of a trade war between China and the US weighs on consumer sentiment.
In its latest update, Burberry said it saw a consistent performance across all its regions, with the division including Europe also seeing a “small” improvement in tourist spending quarter on quarter.
But US sales were hit by falling numbers of shoppers hitting the stores in its third quarter.
Marco Gobbetti, chief executive of Burberry, said: “I am pleased with our progress in the quarter as we continued to build brand heat around our new creative vision and shift consumer perception of Burberry.”
He added that “excitement is building” ahead of next month’s runway collection due from new creative director Riccardo Tisci, after a number of his limited editions were well received.
In the Christmas quarter, Burberry said total retail revenues fell 1% on a reported basis and dropped 2% with currency movements stripped out.
It is in the first phase of an overhaul, that is seeing it close some shops and pull out of department stores as it targets high-end shoppers.
The group is also revamping stores, with another 10 due to be completed by the end of its financial year.
Steve Clayton, manager of the Hargreaves Lansdown Select UK Growth Shares fund, said the third quarter figures were “not the main event, which comes later this year when Burberry launch the first full range produced by new creative chief Riccardo Tisci”.
He said 2019 will be a “year of transition” for Burberry.
“Right now, it’s all to play for at Burberry, but it will be full-year 2020 before investors can really judge whether CEO Marco Gobbetti and creative chief Riccardo Tisci’s bold strategy for the group is winning,” said Mr Clayton.