Burberry shares climb on improving China sales, another sign of recovery for the luxury sector

May 22, 2020, 10:25 AM UTC

Burberry Group Plc said mainland Chinese stores have returned to growth, joining luxury rival LVMH in pointing to light at the end of the tunnel even as a lockdown-induced slump deepens elsewhere.

Burberry shares rose as much as 4.3% on some signs of a rebound in the fashion industry’s key market. Since the start of April, the company’s sales have returned to growth in South Korea, too, as some consumers catch up on purchases thwarted by the virus.

“It will take some time for luxury to recover from Covid-19 and for consumer confidence to return to pre-virus levels,” Chief Financial Officer Julie Brown said on a call with reporters, adding that growth in China and Korea has reached double-digit percentages recently. “We’re seeing very encouraging signs.”

About half of the British trenchcoat-maker’s 421 stores remain closed, putting pressure on sales for the three months through June. Burberry said Friday that store closures would likely remain at their peak throughout the period.

The coronavirus pandemic and lockdown measures to contain it have snarled Burberry’s attempts revive sales under designer Riccardo Tisci and Chief Executive Officer Marco Gobbetti, both formerly of luxury conglomerate LVMH and its French fashion house Givenchy. After two years of broadly flat business, Gobbetti’s turnaround plan was supposed to lead to accelerating sales and margin expansion starting this year.

Some of the rebound in mainland China may be due to consumers repatriating their luxury shopping due to travel restrictions. Prior to the crisis, about half of Chinese luxury spending took place abroad.

The key to a recovery is countries balancing social distancing and controlling the virus, Brown said.

“China and Korea are showing very good signs of being able to do this,” the CFO said. “In terms of durability, it looks very promising.” Retail sales fell 3% on a comparable basis in the 12 months ended March 28. Analysts had expected a decline of 4.6%.

“A 245 million-pound writedown in fiscal 2020 to March on store impairments and stock provisions resulting from Covid-19 is just the beginning for Burberry and other luxury brands in transition phase, in our view,” says Deborah Aitken, BI luxury goods analyst.

Burberry suspended dividends and share buybacks and is accelerating its cost-cutting program to help weather the downturn. The company had 887 million pounds ($1.1 billion) in cash on hand as of the end of March.