Burberry facing pay row gets sales boost from China

Burberry gave a boost to new chief executive Marco Gobbetti only a week after he took the helm, saying rebounding sales in China are more than compensating for continued weakness in the US.

First-quarter retail revenue rose 3% on an underlying basis, to £478m (€540.3m), beating analysts’ estimates of £471m (€532m), the company said. The shares rose the most in about two months.

Results were lifted by cost cutting and by strength in mainland China, where luxury-goods sales are bouncing back after a multi-year slump. Sales in the Asia-Pacific region rose by a mid-single-digit percentage. The Americas remained weak, underlining the challenge Mr Gobbetti faces in putting the trenchcoat maker back on a path to sustainable growth.

The former head of LVMH’s Celine brand took over as Burberry CEO this month from Christopher Bailey, who continues to serve as the company’s creative chief. In preparation for the handover, the company has been streamlining its brand portfolio and US retail presence in an effort to boost profitability.

“Cost savings and enhanced cash returns to shareholders provide some support for the stock,” RBC Capital Markets analyst Rogerio Fujimori said, but Burberry “is facing significant headwinds in the US department-store channel.”

The shares gained 50p to close at 1,630p in London trading yesterday.

The sales report comes before what may be a tense annual general meeting today as some investors object to Burberry’s executive pay.

Royal London Asset Management said it would heed calls from investor advisory groups to vote against the remuneration report. The company left its full-year earnings outlook unchanged.

It said currency swings will reduce earnings by about £25m (€28.2m), based on current exchange rates, which is less than the £30m (€33.9m) forecast in April.

“Gobbetti will take greater control around brand distribution with further cleaning of the wholesale channel,” wrote John Guy, an analyst at MainFirst Bank. “This is a similar strategy when he ran LVMH brands, such as Celine. He would sacrifice short-term sales in order to protect/elevate the brand and drive improved productivity over the long-term.”

In Europe, Britain led the way, although growth has slowed as the group lapped the fallout from Britain’s vote to leave the EU last year, said chief financial officer Julie Brown.

“We continued to see strength in UK domestics and it even rose as we went through the quarter. Customers responded positively to our new DK88 bag.”

Bloomberg and Reuters


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