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Burberry says Brexit makes UK less attractive for luxury shopping

Sales are expected to be hit significantly once coronavirus-related travel restrictions are eased

Burberry Group PLC - Burberry says Brexit makes UK less attractive for luxury shopping

Burberry Group PLC (LON:BRBY) said Brexit will reduce the attractiveness of the UK as a destination for luxury shopping so sales are likely to shift between countries.

Revenue will not be hugely hit this year given the current restrictions, the FTSE 100 grouyp said, but there will be a more significant impact when travel flows resume, so the clothier is looking at ways to mitigate damage as tourists return to mainland Europe.

READ: Burberry encouraged by recovery after half-year profit plunge

Changes in regulations are forecast to cause “modest” increase in border trade compliance costs as well as some incremental duty, while the VAT retail export scheme previously allowing VAT refunds for non-EU tourists has now been stopped.

Nonetheless, the luxury designer said it is well placed to accelerate when the coronavirus (COVID-19) pandemic eases though the short-term outlook remains uncertain.

The group only has 15% of stores closed while 36% are operating with reduced hours or restrictions but they remain susceptible to regional disruptions.

In terms of full year trading, Burberry expects gross margins to benefit from positive full-price, regional and channel mix and lower stock provisions, while cost savings are currently running in line with plan.

In the 13 weeks to December 26, 2020, Burberry's retail revenue fell by 4% to £688mln, with like-for-like store sales down 9%.

Store sales jumped 11% in the Asia Pacific region, with strong growth in Mainland China and Korea, but were down 37% in Europe, the Middle East, India, and Africa and 9% in the Americas amid COVID-19 disruption.

Full-price sales, an area of strategic focus, grew around 9% thanks to younger, new clientele but was offset by an increase in COVID-19 related trading restrictions, a planned reduction in markdown and reduction in tourist traffic.

Digital full-price sales growth over 50% with Mainland China rocketing “in triple digits”.

"The prospects for Burberry look good," commented Freetrade's analyst, David Kimberley.

"Digital growth, brand building and expansion in East Asia are the name of the game for luxury brands at the moment. Burberry looks to be doing a decent job at all three at the moment."

"The only big concern here is whether tourists come flocking back in 2021. This looks unlikely to happen, at least in the first half of the year, and may make shareholders nervous as to whether the fashion chain can bounce back in the twelve months ahead."

Shares surged 5% to 1,818p on Wednesday morning.

--Adds analyst comment, shares--

Quick facts: Burberry Group PLC

Price: 1865 GBX

LSE:BRBY
Market: LSE
Market Cap: £7.55 billion
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