Burberry encouraged by recovery after half-year profit plunge

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Burberry Group PLC (LON:BRBY) has posted a first-half profit plunge and said it expects trading to be hit by the cortonavirus (COVID-19) lockdowns despite October’s performance proving encouraging.

The FTSE 100 firm has around a tenth of its stores closed globally following the recent lockdowns in Europe, the Middle East, India and Africa. The trenchcoat fashion designer said it continues to be strong in Asian markets, with Mainland China delivering “good double-digit sales growth” across full price channels since May.

The Americas also saw a strong performance, with store sales up 21% in the second quarter.

READ: Burberry upgraded to ‘sector perform’ by RBC over recovery path

However, Burberry said revenue in the second half is expected to be hit by reduced markdowns, though it noted that the brand is resonating and attracting new and younger consumers.

The company has also been focusing on its digital channel, which brought in “high double-digit growth” in the quarter to September 30, 2020, and it presented its new runway collection in a live-stream on Twitch.

In the six months to September 26, 2020, Burberry’s revenue dropped by 31% to £878mln while profit before tax plunged 62% to £72mln. The dividend was scrapped as previously announced.

Free cash outflow was £45mln, compared to £29mln the year before, with £90mln of working capital and £34mln of inventory in line with normal patterns ahead of the festive season.

The period ended with the company holding £542mln in cash net of overdrafts and borrowings and cash net of overdrafts of £1.1bn. while there is a £300mln revolving credit facility currently undrawn.

The group said its cost reduction programme is expected to bring savings of £148mln by the end of the year.

“We’re encouraged by the better trends brought by Q2, and it should mean that once things start to get back to normal, Burberry will be greeted by strong demand,” analysts at Hargreaves Lansdown noted.

“In the meantime though, the extent of the damage to both ends of the income statement will depend on the duration of new lockdowns, and the speed at which tourism recovers.”

Shares added 4% to 1,684.52p on Thursday morning.

–Adds shares, analyst comment–

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