LONDON — Monogrammed, made-in-the-U.K. ponchos helped to fuel Burberry’s third-quarter retail sales, which outstripped market expectations despite troubles in Hong Kong, the brand’s highest-margin market.
Third-quarter retail sales at Burberry Group climbed 14 percent to 604 million pounds, or $954.3 million, in the three months to Dec. 31. The dollar figure has been calculated at average exchange rates for the period concerned.
At constant exchange rates, they rose 15 percent, with same-store sales generating 8 percent of the gain, and new stores in places such as Beverly Hills and Tokyo accounting for the balance of growth.
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The retail sales figure was 5 percent ahead of analysts’ expectations, while same-store sales were 2 percent above consensus estimates. The stock market was underwhelmed, however, and Burberry shares closed down 1.4 percent at 16.40 pounds, or $24.93, on the London Stock Exchange.
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Burberry’s chief creative and executive officer Christopher Bailey called the third-quarter performance “strong,” and said Wednesday that the company planned to maximize the opportunities of the fourth quarter, including Lunar New Year, while “being mindful of what remains a challenging external environment.”
The big dark spot in the quarter was Hong Kong, Burberry’s highest-margin market that accounts for more than 10 percent of group revenues. The sometimes-violent political protests that took place last fall kept shoppers away, and dented growth in the region.
As a result, Asia delivered low single-digit percentage growth in the three months, boosted by Mainland China — which remains a robust market — and Korea. Those two regions saw “mid to high single-digit percentage” growth.
Luca Solca, managing director at Exane BNP Paribas, wrote in a note that China continues to perform for Burberry likely due to the “residual impact of the retail network upgrade and a more accessible price position versus peers, in the face of a Chinese market on the back foot in the high-end.”
During a conference call Wednesday, Burberry’s chief financial officer Carol Fairweather said Hong Kong sales growth went negative in the quarter, although the fall was partially offset by higher conversion rates, and the downward trend was no different from that witnessed by Burberry’s luxury peers.
By contrast, the Americas and EMEIA, or Europe, the Middle East, India and Africa, posted double-digit comparable growth. Burberry noted that the shift in sales mix would put pressure on full-year margins as Asia is historically a higher-margin market.
Fairweather also pointed out the reduced negative impact of foreign exchange movements expected in the second half —less than 10 million pounds, or $15.8 million — would be more than offset by the Hong Kong slowdown and the shift in the regional sales mix.
In terms of product, Fairweather called the fall-winter 2014 ponchos — made in the U.K. with wool and cashmere from Scottish mills, and decorated with stripes and geometric patterns — “a standout success” of the season.
She said those, as well as the My Burberry fragrance, were strong sellers and among the most frequently monogrammed items purchased online and in-store. Heritage trenches — which were relaunched last year — and cashmere scarves were also top sellers in the period. Romeo Beckham appeared in the brand’s festive campaign, his neck wrapped in a fringed Burberry check scarf.
Citi said in a report following the results that Burberry has continued to deliver “industry-leading growth in a sector marked by a difficult end to 2014,” while Morgan Stanley Research said it expects Burberry “to have materially outperformed peers over Christmas.”
Looking ahead to the full year, Burberry said that net new space is expected to contribute about 5 percent to total retail revenue growth.
Wholesale revenue, excluding beauty, is set to be down by a mid-single-digit percentage at constant exchange rates in the six months to March 31, “with a more cautious approach” from wholesale customers selling to the European consumer and in Asian travel-retail markets.
For the beauty division, wholesale revenue is expected to grow by about 25 percent at constant exchange rates in the full year.