Burberry profits slip as Hong Kong teeters

Burberry Group plc (LON:BRBY) warned that it expects a further cut to profit margins due to disruption at its high-earning Hong Kong stores.

In its half-year results on Thursday, the luxury fashion house said that the gross margin, which slipped 10 basis points to 67.5% in the period, is expected to shrink another 100bps to 66.6% in the coming year.

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Protests continue to wrack the commercial hub after first erupting in June over government plans to allow extradition of citizens to mainland China.

Hong Kong sales already declined double digits in the 26 weeks to the end of September, and this affected the FTSE 100 companys adjusted operating profit, which fell 4% to £187mln compared to the same period last year despite revenues rising 3% to £1.3bn.

Richard Hunter at Interactive Investor noted: "The fact that Hong Kong finds itself in a technical recession given the disruptions is a blow to Burberrys trading in the region, where it is more profitable than most. In addition, as the company continues its transformation, it has needed to discount prices on older lines more deeply, as well as ploughing more resources into investing in product quality."

The luxury goods firm is in the second year of chief executive Marco Gobbetti's plan to shift the brand further upmarket under new creative director Riccardo Tisci. Signs that this may be working were perceived in retail comparable store sales rising 4% thanks to new collections growing at strong double digits.

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