Burberry Group PLC (LON:BRBY) has unveiled a 2% decline in retail revenue for the third quarter, reflecting weaker sales in the UK.
The luxury fashion brand said retail revenue in the three months to 31 December 2017 came to £719mln, down from £735mln the same period a year ago. Comparable store sales growth slowed to 2% from 3% the previous year.
Shares fell 7.7% to 1,647p in early trading.
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UK sales drop as tourist spending boom ends
UK comparable store sales fell by a "high single digit percentage" against tough comparatives a year earlier when the group reported 40% growth thanks to a slump in the pound after the Brexit vote supporting tourist spend.
The Europe, Middle East and Africa region saw a "low single digit percentage" decline in comparable store sales as the poor UK performance offset growth in Continental Europe and an improvement in the Middle East.
In the Americas, comparable store sales grew at a "low single digit percentage" with the US broadly unchanged from the prior year.
The Asia Pacific region’s "mid-single digit percentage" growth was driven by mainland China.
Full year guidance unchanged
Burberry left its fiscal year 2018 guidance for operating profit unchanged and continues expect margins to improve at constant exchange rates and to remain strongly cash generative.
Mike van Dulken, head of research at Accendo Markets, said: "Reiteration of FY 2018 profits guidance (margin improvement at constant FX, highly cash generative) looks like a failed attempt to curry favour with investors who have already seen the shares rally 28% post-referendum, only to drop 15% in November and struggle for traction since. In fact, today’s breakdown may have triggered a bearish flag towards last year’s lows of 1545p (-7%)."
The retailer said it was on track to deliver cumulative cost savings of £60mln for the year but expects a £15mln hit from foreign exchange rate movements and a one-off charge of £10mln-£15mln resulting from the US tax reform.
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Progress on transformation plan
"We are making good progress embedding our strategic vision into the organisation and remain on track to meet our full year profit target," said chief executive Marco Gobbetti.
"We are building on strong foundations and are fully focussed on the successful delivery of our multi-year plan to position Burberry firmly in luxury and deliver long-term sustainable value."
Hargreaves Lansdown analyst Steve Clayton said while progress on the transformation plan is said to be strong, the returns are unlikely to be visible on the profit and loss account for some time.
“If Mr Gobbetti succeeds in repositioning Burberry to be one of the world’s most aspirational brands, the returns could be impressive. For now though, it is wait and see,” he said.
Impact of Trump's US tax reform
Burberry expects the impact of Donald Trump’s new tax legislation will be "very marginally positive" from 2018. It estimates this year’s effective tax rate on adjusted profit to be 25%.
By fiscal year 2020, Burberry predicts a 200-300 basis point reduction in the effective tax rate.