Burberry: Lack of Tourism Stunts Growth

Written by: Sophie Lund-Yates | Hargreaves Lansdown

Compared to two years ago, Burberry’s third quarter full price comparable sales rose 26%. This reflects double digit growth in the Americas and Asia Pacific, and less severe declines in Europe, Middle East, India and Africa.

Total comparable store sales are still down 3%, as the group continues to reduce markdown.

Burberry now expects full year underlying operating profit to rise 35%, and currency headwinds aren’t expected to be as harsh.  

The shares rose 4.2% following the announcement

Things might look slightly more normal these days, but Burberry knows only too well that we’re a long way off business as usual. Tourism made up a huge 40% of revenue in the Europe, Middle East, India and Africa region before Covid, which means until the skies are full of packed travellers again, performance will be held back. A catalyst for recovery here would be a reduction in testing and isolation requirements for long-haul holidaymakers. The sales gap isn’t as severe as it once was, though, suggesting Burberry’s strategy to focus on full-price sales is paying off. It also seems that customers in domestic regions have been picking up some of the slack and shopping closer to home. How much of that behaviour sticks around when mass tourism resumes remains to be seen. 

Other regions are looking brighter though, as Burberry presses on with its mammoth strategy shift. In particular, Burberry hasn’t been afraid to grasp the nettle and sacrifice some growth in the name of protecting the brand, by reducing the amount of stock it marks down. The expensive refitting of stores is dependent on this strategy pivot working, as Burberry works to consolidate itself at the top of the value chain. 

By all accounts, Burberry is in a better position than some had feared. With further news of rising inflation coming out, the brand is also in a better position than some. Luxury customers tend not to be as swayed by economic ups and downs, including when money in the bank is losing its value at a faster rate than normal. That’s something that simply can’t be said of mid-market high street names.

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