The slowdown in China continues to weigh on Burberry, this trend looks more likely to continue than reverse.

Asia Pacific saw a mid single-digit percentage decline in like-for-like sales. Hong Kong like-for-likes were down over 20%. Impact on the top line was offset by space adds in Mainland China and Korea. EMEA was unchanged, slowing trade from Chinese tourists was offset by growth in domestic demand. The UK and Middle East were weak. Americas slowed through the period with tourist trade down double-digits and uneven domestic demand. This environment is expected to continue offset by a low single-digit contribution from net new space.

Wholesale accounts were hit by the same trend, offset on the top line by growth in the Beauty line. Ex-Beauty, EMEIA was down mid single-digits and Americas/Asisa Pacific were both down double-digits. Management expect wholesale revenue to fall 10% YoY in the first half of next year.

Management reduced guidance for the coming financial year. Adjusted PBT should come in towards the bottom end of estimates, including a £60m gain from exchange rates staying at current levels.

Shares are down 7% this morning, this is surprising. After all, we know China is slowing and that Burberry is tremendously exposed to this trend. Shares rallied at the turn of the year so today’s fall would seem to represent a reset of short-term expectations.

Today’s news, however, seems unlikely to result in a break through support at £11. Bulls will still be happy to buy into the longer-term story here. Management’s estimates for the next year do look shaky, the £60m benefit from exchange rates is 13% of trailing PBT, but new store adds in Mainland China are providing enough support.

Two points are worth remembering. First, the Chinese crackdown on overseas spending is ongoing. Overseas spending limits are now being enforced (remember, the yuan isn’t convertible) and authorities are cracking down on overseas Union Pay transactions. Earlier this month, a new tax on overseas luxury purchases was introduced. Authorities are trying to stop capital outflows, this trend is more likely to continue than reverse.

Second, sales are unlikely to move into China on a one-to-one basis. Goods within China are more expensive than outside, this is why the tourist trade is so big. Comparing Burberry’s online UK prices against China shows a gap between…

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