British luxury brand Burberry said tough market conditions will hit profit in the year ahead after a drop in tourist spending in continental Europe and weak demand in Hong Kong depressed sales in recent months. The company, known for its trademark trench coats and for pioneering the recently popular See Now-Buy Now movement, reported revenue of 1.41 billion pounds ($2 billion) for the six months to end-March on Thursday, down 1 percent on an underlying basis.
"The most significant change in trend between quarters was in continental Europe, where sales to the travelling luxury customers declined sharply, particularly from the Chinese," Chief Financial Officer Carol Fairweather told reporters.
The decline in comparable retail sales accelerated to 5 percent over the last three months.
The weaker sales and muted outlook hit Burberry's London-listed shares. The stock, up by 13 percent since the start of they year thanks to a boost from the weaker pound, was down 6.7 percent at 1,254 pence at 1030 GMT.
Fairweather said sales of accessories such as scarves, ponchos and rucksacks had outperformed clothing, but she was confident the group's British-made trench coats would sell well in the coming peak season. Burberry had also struggled to make headway in the United States, a situation Fairweather said was "perplexing" but no different from what some rivals were seeing, and Burberry would continue to raise awareness of its brand for the long term.
The group was not optimistic for the year to the end of next March, saying profit would come in towards the bottom of forecasts, which sits at about 405 million pounds. That number did include a benefit of about 60 million pounds from currency if current exchange rates endured, but not efficiency savings the group will outline next month, Fairweather said.
Chinese tourist spending grew only 8 percent in January and February combined, compared to 27 percent in the final quarter of 2015, according to travel and shopping analysts Global Blue. Tourism has slowed following deadly attacks in November on Paris -- a top destination for Asian travellers.
JP Morgan Cazenove said foreign exchange, courtesy of worries about "Brexit" in a referendum in June, was providing support, but it was not enough to save the day. The bank said Burberry's performance in the United States lagged LVMH, and that was one reason why the decline in sales at Burberry was worse than that seen at the French company on Monday.
Fairweather said Hong Kong remained weak, with comparable sales down by over 20 percent for the third successive quarter, but sales in mainland China remained positive.
Adjusted profit before tax for the year to the end of March 2016 would be broadly in line with analysts' expectations, which range from 401 million to 443 million pounds. ($1 = 0.7077 pounds)
(Editing by Jason Neely and Keith Weir)