Hong Kong protests hit Burberry

Oscar Williams-Grut
Senior City Correspondent, Yahoo Finance UK
Police detain a demonstrator during a flash mob protest in the Central district in Hong Kong. Photo: Dale De La Rey/AFP via Getty Images

Ongoing pro-democracy protests in Hong Kong have hit sales at luxury group Burberry (BRBY.L).

The British brand, known for its iconic check pattern, said Thursday that sales in Hong Kong declined by a double digit percent in the first half of the year, without specifying the exact decline. Burberry also took a £14m impairment charge on its Hong Kong stores.

Hong Kong is a key market for Chinese luxury shoppers and accounts for around 5% of luxury sales globally, according to UBS. Burberry is more exposed than most, making 9% of its sales in the former British territory.

Widespread protests erupted in Hong Kong in March after the autonomous region’s government tried to introduce a bill that would allow people to be extradited to mainland China. The bill was officially abandoned in September but pro-democracy protests have continued, with increasingly violent clashed between demonstrators and police. Hong Kong police warned this week that rule of law is on the “brink of total collapse.”

READ MORE: Hong Kong protests may hit luxury brands like Burberry and Hermes

Burberry said in its interim results it expects sales in Hong Kong to remain “under pressure” and cut its forecasts for gross profit margins this year as a result.

Burberry catwalk show at London Fashion Week Women's A/W19. Photo: Henry Nicholls/Reutuers

The fashion house delivered solid half-year results despite disruption in its key market. Sales rose by 5% to £1.28bn and operating profit rose 17% to £203m.

Burberry overhauled its design team last year, replacing long-time chief designer Christopher Bailey with former Givenchy creative head Riccardo Tisci. The company said Tisci’s designs were a hit with customers and new products now account for 70% of sales at its stores.

“New product now represents a high proportion of our assortment and the customer response has been positive delivering strong double digit growth,” chief executive Marco Gobbetti said.

“We delivered financial results in line with guidance despite the decline in Hong Kong and we confirm our outlook for full-year 2020.”

Burberry shares rocketed 8.5% at the open in London. The impact of the Hong Kong protests has been difficult to estimate and investors appear relieved that it has not dented Burberry’s forecasts.

“Ahead of today’s interims, the City has been concerned that the recent disruption in Hong Kong could hold back the recovery of Burberry,” wrote Nick Bubb, an independent retail analyst, “but adjusted operating profits of £203m are said to be in line with guidance, despite the pressure in Hong Kong and the full-year outlook has been maintained.”