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Europe, News

Burberry weathers Hong Kong slump by selling more in mainland China

* Hong Kong sales halve, offset by mainland China growth

* Third-quarter comparable store sales up 3%

* Upgrades revenue guidance to low-single digits

* Shares down 1.8%

* (Adds CFO comments, shares)

By Paul Sandle

LONDON, Jan 22 (Reuters) – Luxury fashion label Burberry upgraded its full-year sales forecast on Wednesday as demand for Riccardo Tisci’s new collections in Europe and mainland China offset a slump in Hong Kong.

Burberry, famed for its trenchcoats and check scarves, said its sales in Hong Kong halved in the 13 weeks to Dec. 28, its third quarter, as large scale demonstrations in the territory since June have deterred visitors from mainland China.

Chinese luxury shoppers are a major focus for Burberry and a recent outbreak of a new coronavirus in China, which has killed nine and infected 440 so far, poses another risk to the luxury sector if travel is affected.

Chief Financial Officer Julie Brown said the company was keeping the situation under review at this stage.

Hong Kong was a major market for Burberry, and had previously accounted for 8% of sales, Brown said.

“This quarter we’ve seen a halving of those sales, we’ve seen a considerable reduction of Chinese tourists going into Hong Kong,” she told reporters.

Burberry had not closed any of its stores in the territory, she said, but it was keeping the situation under review and was taking steps to mitigate the impact, for example by reviewing rents.

Burberry’s Chief Executive Marco Gobbetti is moving Burberry further upmarket in the luxury segment, driven by new designs from Tisci, who came on board in 2018.

Brown said the launch of the company’s Lunar New Year campaign in China at the end of December had generated a strong early consumer response.

Sales in mainland China rose by a mid-teens percentage in the third quarter, Brown said, although the growth was offset by the decline in Hong Kong.

The company said it expected total revenue to grow by a low single digit percentage for the year ending in March 2020, compared to previous guidance of broadly stable.

However, its shares were down 1.9% at 22.19 pounds at 1000 GMT, as analysts said the sales upgrade was already priced into market expectations.

Burberry said its adjusted operating margin was expected to remain broadly stable in the year ending in March despite the impact of disruptions in Hong Kong.

Comparable store sales rose 3% in the 13 weeks to Dec 28, led by full-price sales of its mainline collections, Brown said.

Tisci-designed products now made up 75% of the offer in stores, Brown said, and the new collections delivered double-digit growth, partially offset by reduced mark-down inventory and the disruption in Hong Kong.

In Europe, Burberry said it saw high single-digit growth in sales in the third quarter, helped by tourists’ spending in continental Europe.

(Reporting by Paul Sandle; editing by Kate Holton and Susan Fenton)

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