Burberry sales slow as luxury sector starts to feel the impact of global economic crisis

The company was hit by a 5 per cent drop in licensing revenue
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The Independent Online

The first signs that the luxury sector may not be immune to the global economic crisis came yesterday with British success story Burberry revealing a slowdown in sales growth.

Total sales came in at £408m for the three months to the end of June, showing an underlying increase of 11 per cent. That is down from 15 per cent in the previous quarter and below analysts' forecasts of 13 per cent.

The shares fell 7 per cent to 1,189p and its chief executive Angela Ahrendts admitted the company was facing a "more challenging external environment".

The sales slowdown came as Burberry confirmed its new flagship store on Regent Street will miss the Olympics. It will not open until September, having been earmarked to open during the summer.

The luxury sector is beginning to show signs of the impact of Europe's debt crisis and slower growth in emerging markets, including China.

Stacey Cartwright, chief financial officer at Burberry, said: "This is a robust performance. We were up against tough comparisons. But we have a huge amount of brand momentum and we are in line, or better than peers."

Bethany Hocking, an analyst at Investec, said: "We expect Burberry's shares to suffer today. We note, however, that full-year guidance appears unchanged and the first quarter is Burberry's smallest quarter. It is also against the toughest comparisons."

Burberry has been putting its house in order, tidying up messy licence agreements in Japan and focusing on a "legacy clean-up", getting rid of cheaper product lines and selling less through discount outlets.

This has had an impact on sales, Ms Cartwright said, but would mean its margins had improved.

She added that Burberry had been "eliminating the non-British-made outerwear at the lower price points" and focusing on "weaved, British-made fabrics".

Despite being hit by a 5 per cent drop in licensing revenue, shop sales rose 14 per cent to £280m and comparable store sales were up 6 per cent.

Ms Cartwright said the focus remains on "global flagship markets" and the company will continue to open giant stores in key markets, where "luxury travelling consumers" continue to visit and spend.

Growth came from the UK, France, Germany and China, and several new stores are due to open this year, include in London, Chicago, Hong Kong and Shanghai.

In the capital, Burberry said London Fashion Week in September is a more desirable time to open a new store.

Ms Cartwright said: "London will be interesting during the Olympics. There will be traffic chaos.

"We are focused on the luxury travelling consumer, not those who are visiting for the Olympics. In Beijing, we didn't see an uplift at our store during the Olympics, so opening in September is better for us."