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Burberry's Earnings Clouded by Slowdown Fears

Wednesday, 11 Jul 2012 | 12:24 PM ET

While many retailers won't report earnings results until near the end of the "season", Britain's luxury-retailer Burberryreleased its fiscal first quarter financials Wednesday, and it's not a positive ringing endorsement for high-end spending.

A young couple makes a purchase at a Burberry luxury store.
Getty Images
A young couple makes a purchase at a Burberry luxury store.

Burberry's overall first quarter revenue did increase a strong 11 percent, though that's short of the expected 13 percent gain and worrisome to many investors looking down the road. While Burberry is based in London, it's not the impact from the European debt crisis that's most concerning for the famous trench-maker, but China.

The high-end retailer said revenue from China fell to a growth rate in the "mid-teens" from about 20 percent in the second half of 2011. According to Burberry's latest annual report, Asia Pacific makes up the bulk of its revenue by percent, responsible for 37 percent of total.

Earlier in the week, China's trade data revealed imports increased at just half of what was expected.

On Wednesday's conference call, Burberry's Chief Financial Officer Stacey Cartwright said, "[Burberry] is mindful of negative data that comes out ... what we do is make sure that as a business we remain responsive, we focus on what we can control, and our message to our teams is very much to ensure that we continue to outperform irrespective of what the macro throws at us."

A number of analysts and investors fear Burberry's results are just the beginning of slowing high-end sales, with the economic slowdown in Chinaand largely undetermined future of the euro zone weighing heavily on sentiment and spending, for both corporations and consumers. Also, Chinese tourists buy heavily in Europe to take advantage of lower tariffs, so an economic slowdown in China also impacts European luxury sales.

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However, just four weeks ago, American luxury retailer Michael Korsnot only reportedstrong quarterly earnings, but also noted European sales increased 123 percent and that margins improved in the region.

Still, Burberry's results are weighing on shares of other high-end retailers here in the United States. Early in the trading session shares of Ralph Lauren, Michael Kors, Coach, Tiffany, Fossil are all underperforming the broader market.

Burberry's fiscal year guidance appears unchanged, as it notes no significant change to financial position of the company. The first quarter is also the retailer's smallest quarter.

Nevertheless, Burberry is the biggest laggard in the FTSE 100 in the wake of its earnings. Burberry's results also eliciting a number of analysts to change recommendations including Goldman Sachs removing Burberry from its "conviction buy list" and cut price target and Bank of America Merrill Lynch reducing its price target.

-By CNBC's Courtney Reagan

Questions? Comments? Email us at consumernation@cnbc.com. Follow Courtney Reagan on Twitter@CourtReagan.

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