Losses in luxury goods sector knock back UK's FTSE

Britain's top equity index hovered near 15-month lows, as gloomy trading updates from luxury goods companies Burberry and Mulberry knocked back the market.

Burberry warned that conditions in some of its markets, including China, had worsened in its second quarter, overshadowing a 14 per cent increase in the group's first-half sales.

Shares in the 158-year-old fashion company, known for its raincoats with camel, red and black check patterned linings, fell up to 6 per cent – making it the worst performer in the FTSE 100 – after it said the “external environment [was] becoming more difficult”. It said this was expected to result in slight downward pressure on its retail/wholesale profit margin.

The luxury sector was also dented today by a third profit warning this year from smaller rival Mulberry, which said a drop in tourist shoppers had compounded the disruption to its business from a shift back to selling lower-priced bags.

Mulberry shares dropped as much as 25 per cent to a four-year low after it said full-year pretax profit would be significantly below analysts’ expectations.

Mulberry's problems have been exacerbated by an ill-fated attempt to move upmarket that hit sales and profits and led to chief executive Bruno Guillon's exit in March. The firm, which makes over 60 per cent of sales in Britain, said it was making progress with restoring the business to growth, and that its Tessie bags and a range named after model Cara Delevingne had been well received by shoppers.

Revenues for the six months to Sept. 30, the first half of the firm’s financial year, fell 17 percent to 64.7 million pounds ($104 million), with group retail sales down 9 percent and wholesale sales down 31 percent.

Burberry's chief financial officer Carol Fairweather said the firm was aware of tmarket challenges but was confident it was outperforming rivals. First-half performance overall was driven by retail sales growing 15 per cent. Wholesale revenue rose 5 per cent, excluding beauty.

But for its second half, Burberry expects wholesale revenue – sales to third parties such as department stores – to be down by a “mid single-digit percentage,” reflecting a more cautious approach from customers selling to the European consumer and in Asian travel retail markets. – Reuters / Bloomberg