Burberry reports second annual profit drop

Company announces plan to save £100 million a year

 

Andrew Roberts
Wednesday 18 May 2016 07:54
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Pressure is increasing on Chief Executive Officer Christopher Bailey after Burberry predicted last month that earnings this year would be at the low end of estimates
Pressure is increasing on Chief Executive Officer Christopher Bailey after Burberry predicted last month that earnings this year would be at the low end of estimates

Burberry reported a second straight drop in annual earnings and announced plans to save £100 million ($144 million) a year as demand for the UK company’s trenchcoats and other products slows from New York to Nanjing.

Adjusted pretax profit fell 10 per cent to £421 million ($608 million), London-based Burberry said Wednesday in a statement. Analysts predicted £420 million, based on the average estimate.

The cost-saving goal will be achieved by 2019, it said, adding that 2017 earnings are likely to be near the bottom of the range of estimates.

Pressure is increasing on Chief Executive Officer Christopher Bailey after Burberry predicted last month that earnings this year would be at the low end of estimates, or about £405 million. Sales in Hong Kong have fallen more than 20 per cent for three straight quarters, while tourists are spending less in Europe following terrorist attacks and demand remains uneven in the US.

Burberry has been particularly affected by sliding demand in Hong Kong as it only has a small number of stores in Japan, where Chinese shoppers have shifted spending to take advantage of a weak yen. Sales in Burberry’s Japanese stores more than doubled last year, though the country accounts for little more than 2 per cent of overall sales.

Burberry’s difficulties have caused some analysts and investors to question whether Bailey can lead the company effectively, while also being chief creative officer. Adding an executive in an operational role to allow Bailey to focus on design and strategy would be welcome, according to MainFirst Bank analyst John Guy.

© 2016 Bloomberg L.P

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