Burberry reports record profit despite a slowdown in its biggest market

The British luxury brand, known for its signature beige check and trench coats, reported a 23% increase in revenue for the year, while profits rose 38% to £523 million ($649 million).

Burberry shares, which are down more than 12% this year, rose slightly in London trading Wednesday.

The solid earnings came with a cautionary outlook for the Chinese market, where sales fell 13% in the most recent quarter and where “approximately 40%” of the company’s distribution is disrupted by Beijing’s strict Covid-19 lockdowns, said Burberry Chief Financial Officer Julie Brown on an earnings call. “We’re expecting a rebound in China once restrictions are lifted.”

The downturn in China coincided with lockdowns that began in March, crimping sales after an otherwise strong year. Burberry said its full-price business in mainland China grew 54% overall compared with two years ago.

“Our outlook is dependent on the impact of Covid-19 and rate of recovery in consumer spending in mainland China,” the company said in a statement.

Lockdowns in China, the world’s second-largest economy, have caused massive supply chain disruptions and hit consumer spending. Retail sales in the country plunged 11% in April from a year ago, according to government data.

Barclays analysts were overall positive about Burberry’s performance, but underscored the importance of China.

“Burberry, alongside the rest of the sector, is unlikely to recover some momentum until we get more visibility around the Chinese lockdown,” as well inflation and the potential for a recession, the analysts said in a note.

It was an important earnings call for the brand’s new CEO, Jonathan Akeroyd, who took the helm in March. His predecessor, Marco Gobbetti, resigned in January after firmly repositioning the brand in the luxury category.

When Gobbetti announced his departure in June last year, halfway through the brand’s strategic turnaround, shares fell and analysts raised questions about whether a new CEO would stay the course or attempt yet another pivot.

On Wednesday’s call, Akeroyd emphasized building on the brand’s momentum and accelerating growth.

“The ambition to be true luxury remains absolutely right, and it will create the most desired value for the brand and, ultimately, the most sustainable and profitable business,” Akeroyd said.

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