FX headwinds reduce at Burberry but market conditions deteriorate - UPDATE

Burberry's boss said the high end fashion group has "never been better prepared" for the all-important Christmas period after double-digit underlying growth in the first half.

While the company said that negative impact from foreign exchange (FX) movements has recently reduced, the benefit will be partly offset by a "more difficult external environment" with a softening in growth from Chinese consumers both home and when travelling.

Group revenues totaled £1.1bn in the six months to 30 September, up 14% on a constant-currency basis, with growth balanced across regions and major product divisions, it said.

The retail division saw underlying revenues rise 15%, driven by strong performances in the rain-wear, women's Prosum, leather bags and men's tailoring categories.

Wholesale underlying revenues were up 13%, boosted by 55% growth in the newly-formed beauty division.

"This has been a strong first half for Burberry, with sales growth of 14% reflecting our ongoing brand and business momentum," said chief creative and chief executive officer Christopher Bailey.

On a reported basis, group revenue growth was limited to just 7%.

However, while the luxury company said that the full-year impact of FX movements would still be "material", current FX rates would only lead to a £25m reduction in retail/wholesale profit and a 50 basis-point (bp) drop in the adjusted operating margin to 17%.

This is slightly better than July's guidance of a £55m impact on retail/wholesale profits and a 150bp fall in margins.

On the other hand, retail like-for-likes for the second quarter rose by 8% (consensus: 10%), slightly undershooting analysts' forecasts, after having beat them for seven consecutive quarters. Even so, Credit Suisse characterised the trading statement as "good".

Bailey said: "Looking ahead, while mindful of the more difficult external environment, we have never been better prepared internally for the all-important festive periods, with our teams intensely focused on delivering outstanding products and experiences, alongside continued investment to drive productivity and profitable growth over the long term."