Burberry's Europe sales hit by Iran war while US and China grow

By Helen Reid

LONDON, July 17 (Reuters) - Burberry said conflict in the Middle East was hurting tourist spending in Europe, sending the British luxury brand's shares down more than 6% on Friday even though sales in its April-June quarter were strong in the U.S. and China.

Burberry's sales in the Europe and Middle East region fell by 3% as fewer tourists visited Middle Eastern shopping hubs like Dubai, and Europe drew fewer Asian shoppers.

"Where we're really seeing the impact is tourism," Chief Financial Officer Kate Ferry said on a call with journalists, adding that in other regions local spending was helping to cushion the blow, and American tourist spending was strong.

To boost tourist spending in London, CEO Joshua Schulman said incoming Prime Minister Andy Burnham should reinstate tax-free shopping for tourists, which was abolished at the start of 2021.

Although Burberry has said the Middle East only accounts for 2% of its sales, the knock-on impact of the conflict still drew investors' focus as the war escalated with Iran launching fresh strikes on U.S. military bases in the region on Friday. That pushed down luxury stocks across the board on Friday.

STRENGTH IN U.S. AND CHINA

Schulman, who has led a turnaround since taking the helm two years ago, has said he is focused on the two "must-win" markets of the U.S. and China as he tries to revive the luxury brand.

Luxury giants are hoping the U.S. and its newly-minted millionaires from the AI boom can help revive sales growth after a two-year slump.

For Burberry, the strategy appeared to be working, with sales in the Americas up 12% from a year earlier during the quarter thanks to new customers, and Gen Z shoppers helping boost China sales by 9%.

"In America, our strategy is working and we're seeing the halo effect of our investments in the U.S. market in Europe, with the strong presence of American customers here," said Schulman.

Burberry's shares have fallen 18% this year but have outperformed most luxury peers as the brand's sales growth improves.

BURBERRY CALLS FOR TAX-FREE SHOPPING

Burberry's tourist business in London has declined by 50% since 2019, largely as a result of the VAT refund scheme being abolished, Schulman said, and that spending has shifted to Paris where its tourist business is up 30%.

"While we know the new PM (prime minister) has a busy agenda, we would hope that restoring London as the most important shopping capital this side of the Atlantic would be at the top of his list," said Schulman.

Overall comparable store sales in Burberry's first financial quarter grew 5%, in line with analysts' expectations. Burberry's first-quarter revenue - which is typically the smallest of the year - rose to £455 million ($612.88 million) from £433 million a year earlier.

($1 = 0.7424 pounds)

(Reporting by Helen Reid and Yamini Kalia; Editing by Susan Fenton)