Burberry said it is renegotiating leases with landlords in Hong Kong after ongoing protests led to a massive drop in sales in the city.
The British fashion house said sales in the region declined by double digits in the first six months of the year, and warned that more was yet to come.
“We … expect sales in Hong Kong to remain under pressure,” the company said in a statement to the market on Thursday.
Hong Kong sales accounted for 8% of global sales before the protests.
The figure dropped to 5% in the most recent quarter, chief financial officer Julie Brown said on a call with reporters.
She said the group had been forced to close some stores to keep staff safe but none had been damaged.
She did not reveal any plans to close stores permanently; however, she said the group is trying to renegotiate leases with landlords.
Yet, despite these pressures, and against what some analysts were expecting, the company still managed to increase adjusted operating profit by 14% over the period to £203 million.
Meanwhile, revenue grew 5% to £1.3 billion.
Burberry kept its 2020 outlook broadly unchanged “despite incremental pressure on gross margin from the disruptions in Hong Kong”.
Anti-government protests have been raging in Hong Kong for months, forcing many retailers to shutter stores as demonstrators clash with police.
A shining light in the second year of Burberry’s transformation plan was its clothes designed by Riccardo Tisci.
Sales of his collections showed “strong” double-digit growth, meaning new products are around 70% of what is on offer in Burberry’s mainline stores.
“We are pleased with our performance in the half, as we remain on track to deliver the first phase of our strategy. New product now represents a high proportion of our assortment and the customer response has been positive, delivering strong double-digit growth,” said chief executive Marco Gobbetti.
Mr Gobbetti’s team said Burberry’s first carbon-neutral spring/summer catwalk had caught the public imagination, doubling its reach on Instagram compared with the year before, and increasing press coverage by 50%.
Sales in the UK grew in high single digits, the company said.
Growth in China was in the mid-teens, Korea hit high single-digit growth, while Japan was lower, in the mid-single digits, Burberry said.
Sales of men’s clothes grew in the double digits, while women’s fashion saw high single-digit growth.
Mr Gobbetti said: “We … continued to strengthen momentum around our brand and transform our distribution. We delivered financial results in line with guidance despite the decline in Hong Kong, and we confirm our outlook for the 2020 financial year.”