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What's going on?
British fashion house Burberry had some bad news for investors on Wednesday: its sales growth declined more than expected in the most recent quarter. The stock dropped almost 6% on the news!
What does this mean?
According to earnings posted on Wednesday, Burberrys sales growth is slowing down. While same-store sales (which measure changes in sales for stores that have been open for at least a year) rose in the last three months of 2016, they slowed down to 2% in the first quarter of 2017, even though investors expected those numbers to pick up.
On the positive side of things, Burberry saw sales improve in China and the United Kingdom, but the slowing global sales momentum appeared to spook investors.
Why should I care?
The bigger picture: Currency fluctuations can skew reality for international companies.
As a British company, Burberry reports its sales and profit in pounds and, in pound terms, global sales rose compared to one year ago. However, the value of foreign currencies like the American dollar has gone up sharply versus the pound over the past year meaning the value of Burberrys international sales only appear to have risen sharply (as the foreign currency is worth more in pound terms). After filtering out these artificial gains, Burberry reported much lower sales growth. Whether its Burberry, Facebook or McDonalds, its important to strip out the effects of currency fluctuations to understand how an international company is really performing.
For markets: Burberry might disappoint investors hoping for a revival in the luxury goods sector. (tweet this)
Last week, after LVMH reported better-than-expected sales in the first quarter of 2017, thereve been high expectations for luxury retailers to churn out strong earnings reports in the weeks ahead. Burberrys disappointing results might only be an in-house problem (its CEO is stepping down later this year in, arguably, a tacit acknowledgement of his poor performance). But, perhaps more worryingly, the companys results might also signal that the luxury revival is not as widespread as hoped.
Originally posted as part of the Finimize daily email.
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