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Burberry committed to Hong Kong despite sales slowdown

By James Davey

LONDON (Reuters) - Falling sales in Burberry's (BRBY.L) Hong Kong market will not deter the British luxury brand from its commitment to one of its most profitable regions, it said on Wednesday.

Pro-democracy protests in the city, which accounts for around 10 percent of Burberry's total retail and wholesale sales gathered pace last year, keeping mainland Chinese tourists away.

The 159-year-old firm, famous for its British-made trench coats and cashmere scarves, said Hong Kong comparable store sales fell by a double-digit percentage in the three months to June 30, its fiscal first quarter.

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Shares in Burberry, already down 9 percent over the last three months after a cut in profit guidance in May, fell up to a further 3.7 percent, to be the top FTSE 100 faller, despite the group maintaining most of its guidance.

"We manage the business for the long term, always looking through that lens," Chief Financial Officer Carol Fairweather told reporters.

"All of those (Hong Kong) stores remain profitable and so no change to strategy."

However, the CFO said that as leases on its 17 Hong Kong stores come up for renewal Burberry may push for lower rents if sales falls persist.

She said Burberry was focusing on local Hong Kong customers with specific marketing initiatives, while keeping a tight control of costs.

The stock was down 26 pence at 1,595 pence at 1013 GMT, valuing the business at 7 billion pounds.

"The near term will be challenging due to currency volatility and weakness in Hong Kong and China," said Sohil Chotai, an analyst at Edison Investment.

Burberry's Asia Pacific region as a whole posted a low single-digit percentage comparable sales decline, though mainland China grew by a low single-digit percentage.

The firm continued to see growth from the travelling Chinese customer in all markets other than Hong Kong. Chinese shoppers account for 30-40 percent of Burberry's global revenue.

Fairweather said Burberry was mindful of the possible impact of recent turmoil in the Chinese stock market but was focusing "on what we can control".

Overall Burberry posted first-quarter retail sales up 8 percent to 407 million pounds, below analysts' average forecast for 414 million pounds and below the 13 percent growth recorded in the second half of Burberry's 2014-15 year.

Comparable store sales growth was 6 percent, down from 9 percent in the second half.

Burberry's board could face renewed criticism at its annual shareholders' meeting on Thursday over the pay package awarded to Chief Executive Christopher Bailey.

At last year's meeting 53 percent of votes cast opposed his package, which was 7.9 million pounds in the 2014-15 year.

(Reporting by James Davey; editing by Kate Holton and Louise Heavens)