Burberry second-quarter sales hit by China slowdown

• Retail sales growth slows to 2% in first half
• Luxury retailer points to “weakening consumer sentiment” in China
• Share price slips 12% to lowest point since April 2013
• Analyst brands full-year profit forecast “ominous”

Retail sales on an underlying basis rose 2% to £774m in the six months to the end of September after 8% growth in the first quarter, the fashion retailer and brand said. Group sales were flat at £1.1bn.

“In the second quarter, demand from luxury consumers, particularly Chinese customers was affected by a more challenging external environment,” Burberry said.

Across the Asia-Pacific region Burberry recorded a “mid-single-digit” drop in sales because of “deceleration” in Hong Kong, while in China sales fell “slightly” due to “weakening consumer sentiment” in the second quarter.

Burberry’s chief executive and chief creative officer Christopher Bailey said: “The external environment became more challenging during the half, affecting luxury consumer demand in some of our key markets.

“In response, we have intensified our focus on driving sales and productivity, while taking swift action on discretionary costs.”

Looking ahead, Burberry, which owns 218 stores worldwide, said full-year pre-tax profits will be “broadly in line with the average of those analysts who have recently updated forecasts”.

It added: “Our assumptions include a return to mid-single-digit percentage growth in comparable sales in the second half, ongoing cost efficiencies, a reduction in performance-related pay and a benefit of about £10m to reported profit if exchange rates remain at current levels.”

However, independent analyst Nick Bubb branded the profit forecast provoked alarm bells. “The worry beforehand was that group performance would be hit by the slowdown in China and the comment that ‘for FY 2016, we expect that adjusted PBT will be broadly in line with the average of those analysts who have recently downgraded forecasts’ is ominous,” he said.