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Burberry to cut jobs as coronavirus hits sales in Europe and Americas

Sales in mainland China grew in the mid-teens in the first quarter, while in the EMEIA region were down around 75%

Burberry Group PLC -

Burberry Group PLC (LON:BRBY) unveiled further plans to cut 500 jobs and close some offices as it reported a 45% drop in like-for-like sales in its first quarter due to a reduction in luxury demand during the coronavirus pandemic.

But the FTSE 100-listed fashion house said this decline eased to 20% in June and on that basis it expects retail sales in the second quarter to end-September to fall 15-20%.

Sales varied strongly between regions, with Asia Pacific declining 10% in the first quarter but returning to growth in June, with mainland China growing in the mid-teens in the quarter and above 30% in June, while in Europe, Middle East, India & Africa and the Americas declined more than 70%.

With wholesale revenues expected to be down 40-50% for the first half of the year, Burberry expects group first-half operating costs to reduce by a mid-teens percentage compared to the same period last year and gross profit margins to decline by around 2-3%.

“We are encouraged by the improving trends in all regions and the promising exit rate for June,” said chief executive Marco Gobbetti. 

“We saw an excellent response to new product launches in recovering economies as well as online.”

Entering the second phase of his strategy since taking over in 2016, this year he is pushing through organisational changes, including creation of three new business units covering Ready-to-Wear, Accessories and Shoes, along with further reductions in property and the axing of around 500 of the 10,000 global jobs, including 150 out of 3,500 in the UK.

These changes are expected to deliver savings of around £35mln this year and annualised savings of £55mln, with an associated one-off restructuring charge of £45m.

Shares in the group fell 7% to 1,449p on Wednesday morning, having previously recovered around 50% from March's four-year lows. 

LFL sales were not quite as bad as the consensus forecast of a 49% fall, analysts at UBS noted, casting aspersions at the “somewhat disappointing” outlook for the first half for combined retail and wholesale, together with a rather “unimpressive” exit rate in China 30%.

“Although some may see the additional cost cutting as a positive that supports the FY21 outlook, we believe it points to limited success for Burberry's turnaround plan and further downside risk to numbers.”

Richard Hunter, head of markets at Interactive Investor, said: “The fate of the Asian consumer is having differing effects on Burberry’s prospects. In recent years, the company had benefited not only from sales in mainland China, for example, but also from the large and free-spending Asian tourist in Europe in particular.

“With regular overseas travel still some way off, some of these sales have been repatriated, and to the extent that sales in China and Korea returned to pre-pandemic levels in June. Burberry has more recently regarded accessories and leather goods as being key growth areas, and this appears to be showing some signs of success as those economies begin to recover.”

He said Burberry’s recovery is “marathon and not a sprint” and the duration of a return to normality “remains largely unknown and ongoing political tensions in the Asian region are still a concern”.

    --Adds share price and broker comment--

Quick facts: Burberry Group PLC

Price: 1421.5 GBX

LSE:BRBY
Market: LSE
Market Cap: £5.75 billion
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