Political turmoil in Hong Kong expected to dent Burberry sales growth
Analysts at Jefferies predicted that lengthy protests and political upheaval in Hong Kong could have a ‘painful’ impact on the fashion firm.
Burberry investors are holding out hopes the luxury retailer has followed its “encouraging” start to the year with strong first half figures, despite fears political turmoil in Hong Kong could hit revenues.
Sales at the retailer are expected to rise higher for the past six months on the back of a strong first quarter, according to analysts.
In the first three months of the financial year, the retailer reported revenues of £498 million on the back of a stronger-than-expected performance in its Asia Pacific region.
However, analysts have raised concerns that Burberry could see its sales hit by as much as £100 million for the year due to the escalation of turmoil in Hong Kong and China.
Analysts at Jefferies said that Burberry is currently “behind where we would expect it to be” at the current stage of its relaunch process.
The company has bet on new branding to boost sales and saw its shares rise after revenues rose by 4% for the 13 weeks to June 29.
Nevertheless, Jefferies said it anticipates a sales slowdown due to the expected “painful impact” of issues in Hong Kong.
Burberry runs 10 locations in Hong Kong and generates roughly 8% of its total sales from the region.
But the brokerage added that it believes sales momentum in China is “healthy” with growth in the high-teens.
Fears over the impact of disruption in Hong Kong comes a month after rival LVMH said it performed well in Asia despite the “difficult context in Hong Kong”.
The Share Centre said global economic pressures and sales in Asia will be at the forefront of investors’ concerns regarding the latest set of figures.
The retail stockbroker said: “The first quarter trading numbers provided a lot of encouragement to investors as Riccardo Tisci’s new lines met approval on the catwalk and sold very well amongst customers taking new product lines to roughly 50% of total sales.
“Trading was good in most regions even in Hong Kong and China, but with the political unrest ongoing, investors should not be overly surprised if this has affected sales in one of its key geographies.
“Also with the global economic slowdown, there is some trepidation that consumer confidence in general is weakening, but how it affects the luxury market will be interesting to see as the high end markets occasionally behave differently.”