Burberry sales suffer Covid-19 pain but firm is preparing for the recovery
Burberry had more bad news on Thursday as it updated on the "material negative effect of Covid-9 on luxury demand" saying that the situation has "intensified and is now impacting the industry in all regions”.
What that means in practice is that trading has deteriorated significantly since January 24 with comparable retail store sales having seen a deficit of between 40% and 50% over the last six weeks.
The company, whose financial year ends on March 28, had said in early February that its sales losses up to that point were predominantly in its Asian markets. But since then, trading in its stores in mainland China has started to improve. That said, sales in EMEIA and the Americas “have fallen materially in recent weeks”.
More than 60% of its stores in EMEIA and around 85% of its stores in the Americas are currently closed with those still open operating on reduced hours and “with very weak footfall”. Around 40% of its directly operated stores globally are closed with additional closures expected in the next few days.
As a result, the company is now expecting its comparable retail store sales in the final weeks of the year to be down by anything from 70% to 80%. And that means that Q4 as a whole will be down around 30%.
But the big question that arises in this situation is whether this represents an existential threat to the company, and it seems not. The luxury giant is “implementing mitigating actions to contain our costs and protect our financial position, underpinned by our strong balance sheet”.
That means renegotiating rents, restricting travel and reducing discretionary spending. But it has “significant financial headroom including liquidity of £0.9 billion from £0.6 billion cash balances (before lease obligations) and a £0.3 billion Revolving Credit Facility”.
CEO Marco Gobbetti said the firm remains “confident in the strength of our brand and our strategy. Until 24 January, the consumer response to the new product was very positive and as such, we are protecting key growth initiatives in preparation for a recovery in luxury demand”.
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