Burberry says coronavirus impact ‘worse than HK protests’
About a third of China stores shut and footfall down 80% at remainder
Luxury fashion group Burberry said that sales impact of the coronavirus outbreak in China is more significant than the civil unrest that halved sales in Hong Kong during its last fiscal quarter.
The company, which derives about two-fifths of its revenue from Chinese consumers, said 24 out of its 64 stores in mainland China were closed and the remainder were operating on reduced hours.
Footfall was down by up to 80 per cent at the stores which remain open as consumers stayed in their homes, with a similar impact felt in Hong Kong. The former British colony has imposed a 14-day quarantine period on arrivals from the mainland, though that fell short of local demands for the border to be closed entirely.
“It is more serious in Hong Kong than the protests,” said chief financial officer Julie Brown, referring to the street protests that caused sales there to halve from 8 per cent of the group total in the three months to end-December. “This has had even more significant impact on our Hong Kong business.”
None of the group’s employees in China have been diagnosed with the illness, and Ms Brown said the company was “very supportive” of the Chinese government’s efforts to contain the spread of the virus.
She added it was too early to assess the financial impact and that Burberry would issue an additional trading statement in mid-April.
“We have got around two weeks of information and we have another eight-and-a-half weeks to go until year-end,” she said. “It depends on the longevity of the outbreak and what happens next”.
Consensus estimates compiled before the outbreak started showed analysts had been expecting sales of £2.82bn, a like-for-like increase of around 4 per cent, and underlying operating profit of £449m.
Both Burberry and French rival LVMH were fairly sanguine about the impact of the virus during January, when its effects initially looked to be confined to the city of Wuhan.
LVMH chief executive Bernard Arnault said in late January it was far too early to gauge its impact, adding that it “won’t be too bad if it lasts two months but if it lasts two years that would be another story.”
However, as the scale of the outbreak has become apparent, companies have begun to adjust their forecasting. Tapestry, the parent company of Kate Spade and Coach, on Thursday said its Chinese business was being “significantly impacted” by the spread of the virus and warned that full-year earnings would be lower than forecast.
Ms Brown said that Burberry had seen “very good spending patterns” from Chinese already holidaying abroad, but expects that once they return home there would be far fewer outbound tourists to take their place.
She added that the company was reviewing costs “line by line” in response to the reduced sales levels, but stressed that the customer response to its latest designs had been strong.
Burberry’s key trading period is its third quarter, which includes both Christmas and the “golden week” celebrations in China, but the final three months of the year are also commercially significant due to the Lunar New Year festival.