Burberry sales hit hard by Covid-19

Luxury brand Burberry said on Thursday that trading has deteriorated significantly over the last couple of months due to the coronavirus outbreak and that sales in the fourth quarter will decline around 30%.

The company had said in February that sales losses were mainly in its Asian markets. However, trading in mainland China has now started to improve as most of its stores reopen, but sales in EMEIA and the Americas have fallen "materially" in recent weeks.

More than 60% of its stores in EMEIA and around 85% of its stores in the Americas are now closed, with those still open operating reduced hours, with "very weak" footfall, it said. In total, around 40% of its directly operated stores globally are closed with more closures expected imminently.

As a result of government restrictions on travel and social contact, the group now expects comparable retail store sales in the final weeks of the year to be down between 70% and 80%. Comparable retail store sales for the fourth quarter will slump 30%, Burberry said.

"We are implementing mitigating actions to contain costs and protect our financial position, including renegotiating rents, restricting travel and reducing discretionary spending," it said.

Burberry insisted it has "significant" financial headroom, including liquidity of £0.9bn from £0.6bn cash balances and a £0.3bn revolving credit facility.

Chief executive officer Marco Gobbetti said: "Since our February update, the material negative effect of Covid-19 on luxury demand has intensified and is now impacting the industry in all regions.

"We are implementing mitigating actions to contain our costs and protect our financial position, underpinned by our strong balance sheet. We remain confident in our strategy and the strength of our brand and I am exceptionally proud of our teams' resilience and commitment."

At 0930 GMT, the shares were down 3.5% at 1,064p.

Russ Mould, investment director at AJ Bell, said: "Burberry was one of the first companies to see its share price come under pressure amid the initial spread of the disease in China due to its substantial exposure to that market.

"It is an interesting about-turn that its shops in mainland China are now reopening, and assuming the virus remains supressed in that country it could actually be a bright spot for the company in the short-term.

"As you would expect Burberry has moved to reassure investors on its financial position as it looks to weather a period of profound dislocation for the business.

"For now there is no mention of suspending the dividend but that may change when the business announces its full year results in May (if not before)."

Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: "The closure of stores across Europe and the Americas has inevitably had knock on effects for sales, and things look set to get worse before they get better.

"There are some glimmers of good news. Chinese sales are recovering after stores reopened - although we suspect the bounce back will be slow. The balance sheet still looks pretty healthy with plenty of cash and borrowing facilities available, helping the group to weather a downturn.

"The key question for investors is how long will the current lockdowns last? That’s an unknown and the longer this drags on the more permanent the damage will be."