Burberry says markets getting tough; shares fall 4.2%

British luxury brand Burberry posted a 14 percent rise in total first half revenue though it cautioned the external environment was becoming more difficult, partly offsetting reduced currency headwinds.

The 158-year-old seller of raincoats and leather goods, known for its camel, red and black check pattern, said on Tuesday it made revenue of 1.1 billion pounds ($1.77 billion) dollar) in the six months to Sept. 30, reflecting a strong performance across all regions and continued digital growth.

Meanwhile British luxury handbag maker Mulberry said full-year pretax profit would be significantly below expectations after a slump in first-half trading added to the disruption of a product overhaul. The stock sank 20 percent in opening deals.

Mulberry had warned in June of a tough year ahead as it shifts to a lower price strategy following an ill-fated attempt to move upmarket that hit sales and led to chief executive Bruno Guillon's exit in March.

On Tuesday, in the latest in a string of profit warnings, the firm said tougher than expected trading conditions had added to its woes, with falling levels of tourist shoppers hurting its core UK business.

Burberry store at London's Heathrow Airport
Source: Heathrow Airport
Burberry store at London's Heathrow Airport

Burberry's earnings were driven by retail sales growing 15 percent to 748 million pounds - bang in line with analysts' average forecast, with comparable sales growth of 10 percent.

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Wholesale revenue rose 13 percent to 317 million pounds.

However, for its second half to March 31 Burberry expects wholesale revenue at constant exchange rates to be down by a "mid single-digit percentage". That reflects a more cautious approach from customers selling to the European consumer and in Asian travel retail markets.

The luxury goods industry is currently facing a testing time, with the Ukraine crisis hitting demand in Russia and anti-government demonstrations in Hong Kong adding to concerns about a slowdown in China, where a government crackdown on corrupt gift giving has hurt luxury goods sales.

Burberry said that if exchange rates remain at current levels, the full impact on reported retail/wholesale profit in the 2014-2015 year will still be material.

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As an indication, it said rebasing 2013-2014 retail/wholesale profit for current effective exchange rates would have reduced reported profit by about 25 million pounds. Burberry had previously flagged a potential hit of about 55 million pounds.

Mulberry, like rivals Louis Vuitton and Gucci, is struggling to compete against more accessible, trendy fashion brands such as Michael Kors which give customers the look and feel of luxury at a fraction of the price.

To better compete, the firm is strengthening its product offering at a price range of 500-800 pounds.

Mulberry said sales trends had improved over the first half, indicating it was taking the right steps to restore the business to growth.

The firm added its flagship Paris store, due to be opened early next year, would mark the end of its investment in new stores, which has seen it expand its footprint globally.