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Burberry, Richemont Shares Slump on China Jitters, Weaker US

Burberry, Richemont Shares Slump on China Jitters, Weaker US

Friday, 15 July, 2022 - 15:30
A Burberry logo is seen outside the store on 5th Ave in New York, New York, US, March 19, 2019. (Reuters)

Burberry and Richemont on Friday laid bare the damage to sales inflicted by China's strict lockdowns, driving their shares sharply down and renewing concerns about the outlook for the world's top luxury goods market.

Signs of weakness creeping into the US market, the industry's other main growth engine, added to investor jitters.

Shares of British luxury brand Burberry fell 7.1% while Cartier-owner Richemont traded 6.3% lower. Larger peers LVMH and Kering were down 2.3% and 1.7% respectively.

"Mainland China is acting as a serious drag" for Burberry, said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

Financial reports showed sales from mainland China were down 35% at Burberry, while Richemont posted a 37% drop.

Both flagged improvement in more recent weeks as lockdowns eased, with Richemont noting a sales decline of 12% in June.

Burberry Chief Financial Officer Julie Brown said there was a "very positive trend from consumers" as stores reopened -- although hampered by requirements for COVID tests within the past 72 hours for shoppers.

But those signs of more recent improvement were overshadowed by dismal second-quarter GDP figures showing weakness in China's economy, with sluggish growth of 0.4% in the April-June quarter from a year earlier.

"We still see some near term uncertainty with China," said Brown.

She said that in the United States, sales of smaller leather goods like sneakers were "somewhat weaker".

Americas, Burberry's best performing region last year, went into reverse, with comparable store sales down 4%.

Citi analyst Thomas Chauvet highlighted weakening macro data in the United States and an "uncertain shape of recovery in China".

The luxury sector had rebounded from the pandemic more quickly than many other sectors as people rushed to spend savings accumulated during lockdowns once socializing resumed.

European luxury industry executives had in recent months shrugged off concerns about pandemic disruptions to business in China, pointing to the fast rebound following previous waves of lockdowns and longer-term prospects for the market.

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