Burberry H1 Profit Drops in Difficult Luxury Environment

LONDON, United Kingdom — Burberry Group Plc said it sees a tougher climate for luxury goods after currency fluctuations led the U.K. maker of $1,600 trench coats to report a drop in first-half earnings and demand softened in Asia.

Adjusted pretax profit for the six months ended Sept. 30 fell 12 percent to 152.3 million pounds ($242.5 million), the London-based company said today. The average of six estimates compiled by Bloomberg was 153.5 million pounds. Foreign-exchange effects reduced profit by 31 million pounds.

"In this environment, we continue to focus on the things we can control," Chief Executive Officer and creative head Christopher Bailey said at a presentation in London.

Burberry is the latest luxury-goods maker to say market conditions are weighing on business. While sales to Chinese customers increased in the first half, growth slowed in Asia in the second quarter, the company said, echoing recent comments by Hermes International SCA.

Currency movements, the cost of investment and “a more difficult” climate, including a more cautious approach by some wholesalers, is likely to put some downward pressure on full-year margins, Burberry confirmed.

The company’s outlook “seems inspired by prudence,” Luca Solca, an analyst at Exane BNP Paribas in London, said by e-mail. “Today’s attention will be focused on Burberry’s ability to maintain growth momentum as consensus still expects 7.5 percent underlying growth in the second half.”

Shares Slip

Burberry shares fell as much as 2.5 percent to 1,490 pence in London trading and were down 0.9 percent as of 11 a.m. The stock is almost unchanged this year.

Burberry said it doesn’t expect currency fluctuations to have a “material” impact in the second half of fiscal 2015 if rates remain at Nov. 3 levels, taking into account current hedged positions. Overall, the company is confident of “sustained outperformance,” Bailey said in a statement.

Six-month retail revenue rose 8 percent to 748 million pounds, Burberry said last month. Sales growth slowed in the second quarter from the first on a comparable basis.

Global sales of personal luxury goods could grow this year at the slowest pace since 2009 as spending falls for the first time in China, Bain & Co. predicts.

By Andrew Roberts; editors: Celeste Perri, Paul Jarvis, Tom Lavell.