Burberry Group PLC (LSE:BRBY) grew its global turnover by 5% in the first quarter despite “significant disruption from lockdowns in mainland China”, which wiped more than a third off its sales to the region.
"Our focus categories, leather goods and outerwear continued to perform well outside of mainland China and our programme of brand activations boosted customer engagement,” said Burberry chief executive Jonathan Akeroyd.
“While the current macro-economic environment creates some near-term uncertainty, we are confident we can build on our platform for growth."
The British designer brand is continuing to target high single-digit revenue growth and 20% margins in the medium term, it said in a trading statement.
It expects tailwinds of £190mln to its revenue and £90mln to its operating profits for the full year due to currency effects.
Burberry’s shares fell 3.73% by 08:05 this morning, as it reported a 35% drop in sales to mainland China in the 13 weeks to 2 July due to restrictions and store closures designed to control Covid-19 outbreaks.
The company said it generated £505mln of sales in the first three months, up from £479mln in the comparable period a year ago, partly on the back of a return to pre-pandemic spending outside China.
Growth was strongest outside China, which analysts estimate comprises about a third of the retailer’s global business, where it said leather goods and outerwear performed well.
The retailer grew its Europe, the Middle East, India and Africa (EMEIA) business by 47%, where it reported “an increase in spending” to above pre-pandemic levels.
While this growth was partly due to a rebound in sales to American tourists, it said sales directly to the Americas fell 4%.
Led by the Lola handbag range, Burberry boosted sales of its leather goods by more than a fifth outside mainland China, and outerwear revenue by 19% driven by rainwear and jacket sales.
Alex Smith, senior analyst for luxury goods at Third Bridge, said: “Burberry should remain resilient during a recession but it is more exposed than some other luxury brands.”
“Gross margins could be improved by increased pricing and better sourcing. Operating margins are expected to be under pressure due to high inflation and the marketing costs required for their turnaround strategy.”
Burberry said it drove nearly half a million profiles to its global customer database during the first quarter of fiscal 2023. It expanded its Lola handbag range with a campaign starring celebrities such as Bella Hadid and Jourdan Dunn, while Gisele Bündchen helped the brand launch its TB Summer Monogram collection. It also brought on board South Korean Premier League footballer Son Heung-min as its new brand ambassador.