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Burberry is already rebounding thanks to China

Trading has picked up in recent weeks for British luxury brand Burberry, with improvements in the important Hong Kong and mainland China markets adding to hopes of a better performance in its peak sales months.

The firm, famous for its trench coats, cashmere scarves and ponchos, said on Thursday comparable store sales since the beginning of October had improved relative to the previous three months when they fell 4 percent.

Last month Burberry missed sales growth forecasts for the first half of its financial year and warned of an increasingly challenging environment for luxury goods, particularly in China and Hong Kong, sending its shares to a near three-year low.

Its shares, down nearly a quarter over the last six months, rose up to 2.5 percent on Thursday.

“The update has provided some small relief to a share price which has struggled,” said Richard Hunter, head of equities at Hargreaves Lansdown.

In the previous quarter comparable store sales had crashed over 20 percent in Hong Kong and about 5 percent in China.

Hong Kong and Chinese shoppers account for between 30 and 40 percent of Burberry’s global revenue.

“Hong Kong has improved but remains very challenging…In China we have returned to positive comparable growth,” finance chief Carol Fairweather told reporters.

The firm has responded to tough markets in Hong Kong by agreeing a lease restructuring deal with its landlord to reduce the size of its flagship store there next year.

The move would boost sales per square foot and protect profit. Rents have also been re-negotiated at other Hong Kong stores.

Fairweather said the U.S. market “remains very volatile and "quite difficult to read.”

She said Burberry has never been better prepared for the festive season, covering Christmas and Chinese New Year celebrations.

“The really big weeks now start kicking-in, right through to Lunar New Year in the middle of February,” she said, forecasting second half comparable stores sales growth for the group as a whole of about 5 percent. The company’s financial year runs until the end of March.

Burberry also reported a better-than-expected 3 percent rise in first half adjusted pretax profit to 153 million pounds ($233 million) for the six months to Sept. 30, ahead of analysts’ consensus forecast of 147 million pounds.

Achieved on flat total revenue of 1.11 billion pounds, the profit outcome reflected 20 million pounds of cost savings, such as on staff recruitment and travel.

Burberry ended the half with net cash of 459 million pounds and is paying an interim dividend of 10.2 pence, up 5 percent.


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