Burberry slashes dividend as Covid lockdown hammers sales
Fashion retailer Burberry pulled its final dividend and took a £241m hit to profits related to the coronavirus pandemic.
The company on Friday said it expected its first quarter to be severely impacted with store closures likely to be at or near peak for most of the three months to June 30.
Full year pre-tax profits fell 62% to £169m as Burberry felt the impact of store and factory closures globally. Revenues fell 3% to £2.6bn with comparable sales slumping 27% in the fourth quarter.
The dividend was slashed by 73% to 11.3p, worth around £120m, with future payments to be reviewed at the end of FY 2021. Free cash flow plunged to £66m from £301m a year ago and the company revealed it had borrowed £300m through the UK government's business support scheme
Burberry said 60% of stores had been closed by the end of the final quarter. The luxury chain was hit by the January shutdown in China, a key market and origin of the pandemic, followed by Europe and North America as the virus spread, battering sales.
"Following the end of January 2020, as described above, trading deteriorated significantly, impacted by store closures, reduced operating hours and significant footfall declines," the company said.
The charge against profits included £68m in stockpiled inventory that would now have to be offloaded and £157m against the carrying value of its store estate.
Burberry said year to date sales in mainland China and Korea were already ahead of the prior year and "continuing to show an improving trend" although it cautioned the Chinese recovery could be driven by "repatriation of spending" as wealthy consumers there could not travel.
"However, as government restrictions ease across the globe, consumers in different markets are likely to respond in distinct ways, with the travelling consumer likely to take longer to return. As a result, it could take some time for the luxury industry to recover to pre-crisis levels," the company said.
Hargreaves Lansdown analyst Sophie Lund-Yates said Burberry's problems wouldn't be over once restrictions start to ease as the group had a lot of exposure to travelling consumers, "with tourists from Asia an important part of the sales story in other regions".
"It’s going to be a while until tourism is firing on all cylinders, so this will continue to be a drag on performance," she said.
"Looking beyond the noise, sales were actually faring better than expected before the outbreak. That’s been helped by a mammoth and largely successful effort to pivot the brand towards the ultra-luxe market, which will also help margins in the long run."
"The threat of global recessions is also less of a problem for the likes of Burberry – its wealthy customers tend to keep spending regardless of what the economy’s doing."