Burberry looks to US to prop up brand as Hong Kong sales fall

Burberry's trademark trenchcoats and cashmere scarves helped push second-half sales up 10 per cent as strong trading in the US more than offset the continued deterioration of sales in Hong Kong.

The retailer reported double-digit growth in like-for-like sales in the US, the world's largest luxury market, as overall revenues rose 10 per cent to £1.42bn for the six months to March 31, bringing full-year sales in line with market expectations.

Underlying retail sales were up 13 per cent to £1.059bn, with 4 per cent of that growth coming from new store space.

Luxury brands have faced an array of challenges in the past year, with exchange rate fluctuations forcing significant price hikes and cuts in different markets.

The falling price of oil, heightened tensions between Russia and the West, and the Chinese government's crackdown on corruption has also hit demand among key luxury consumer groups.

On Wednesday, Burberry said it had posted a "robust" performance despite the uncertainty in the market, but said that its strategy of "actively managing" pricing was unchanged. "We always seek to maintain to our price positioning relative to our immediate peers," said Carole Fairweather, chief financial officer.

Hong Kong was a sore spot for the luxury retailer with like-for-like sales falling by mid-single digits as a result of the protests and subsequent crackdown on travel between the island and mainland China. Overall like-for-like sales in Asia, its largest market, were up 7 per cent to £553m due to a better performance in mainland China and South Korea.

Trading in the Americas, Europe, Africa, India and the Middle East was better than in Asia, with underlying retail revenue growth in the double digits and a "strong" performance in Italy, France and the UK from both domestic and travelling luxury customers.

However, Burberry warned that its progress in Japan, a key strategic growth market, would be slower than expected due to a lack of appropriate retail space. Ms Fairweather said that the company's commitment to Japan was unchanged, but that it would take "a year or two" longer to hit its current 2017 targets.

Currency movements, which weighed on Burberry in 2015, are likely to buoy retail and wholesale profit by £50m in its 2016 fiscal year, if exchange rates remain at current levels.

However, the company said that wholesale revenues, which were down 1 per cent in the period, would continue to fall in the first half of the current financial year, when its beauty division is excluded.

New store space is expected to contribute low single-digit sales growth in the current financial year, said Burberry.

Luca Solca, luxury goods analyst at Exane BNP Paribas, said that the guidance was "a tad lower" than current expectations for low to mid single-digit sales growth from new store space.

He said that the "cautious" outlook could "dampen market excitement" following the broadly positive trading statement.

Shares were up less than 1 per cent to £17.95 in early London trading.

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