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Burberry Slips on Weaker Asian Demand

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Burberry Slips on Weaker Asian Demand

Shares of Burberry (OTC: BBRYF) fell 19 percent on Tuesday, the biggest single-session drop since November 2008. Britain's maker of the iconic trench coat and other luxury goods said adjusted pretax profit through March will be at the lower end of analyst estimates.

The announcement may suggest that the demand for luxury products is finally feeling the effects of the global economic downturn, as the appetite for expensive goods declines.

Burberry said same-store sales in the 10 weeks prior to September 8 were flat compared with a year earlier. The slowdown in sales happened primarily in the last few weeks and was a result of global economics.

The company didn't specify the area most affected by the sales slowdown. But indicators point to weakening demand in Asia, which accounts for around 38% of the company's revenue.

Asia, especially China, has been the greatest source of growth in the luxury category, but signs of a slowing Chinese economy have led analysts to forecast a softer market for luxury products.

Data from China released yesterday shows exports grew only 2.7% year-to-date, down dramatically from growth rates of more than 20% a year earlier, suggesting weak overseas economies, particularly in the Eurozone, are having a significant effect. Burberry's rivals LVMH Moët Hennessy, Louis Vuitton SA and PPR SA also saw sharp declines, as traders may believe that they will face similar problems.

Burberry said its full-year adjusted pretax profit would be at the lower end of analyst expectations, which stand at between £407 million and £455 million, according to the company.

"As we stated in July, the external environment is becoming more challenging," said Chief Executive Angela Ahrendts. "In this context, second-quarter retail sales growth has slowed against historically high comparatives."

 

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