British luxury fashion label Burberry has reported only a slight increase in retail sales in Q2 – 2 per cent. The increase is largely due to the fact that tourists are taking advantage of the weaker pound due to Brexit, buying luxury goods.
The company said positive trading in Europe and a “significant outperformance in the UK” helped the improvement in comparable retail sales, its first growth in the measure for four quarters.
Around 40 per cent of Burberry’s costs are incurred in Britain, versus 15 per cent of its sales. This difference makes the Brexit-fueled drop in the pound a major driver of reported profit for the group.
The world over though, there has been only a very slight moderation in the pace of decline. Sales outside of the company’s home market are worth more when converted into sterling, which has fallen by 18 per cent against the dollar since the UK voted to leave the EU in June.
In Hong Kong, with sales down by more than 10 per cent year-on-year. According to the Wall Street Journal, business in mainland China — a key focus in the industry this year as Chinese consumers have brought their spending home — is being held back by a project to upgrade Beijing stores.
The Wall Street Journal report further says that the crucial US market is also showing no sign of recovery. Roughly half of Burberry’s goods are sold through department stores, which have been discounting to clear excess stock and stimulate sluggish demand. This hasn’t only weighed on Burberry’s sales to these retailers but also made it hard for the brand’s own U.S. boutiques to compete.
Burberry has been one of the best performing stocks since Britain voted to leave the European Union on June 23, helped by the weaker pound. Its shares are up 35 per cent, outperforming the FTSE 100 index by 24 per cent.
Analysts were expecting a 1 per cent rise in second-quarter retail.