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Feb. 7, 2020, 6:27 a.m. EST

Burberry shares drop in London as luxury-goods group warns of coronavirus fallout

By Barbara Kollmeyer, MarketWatch


AFP via Getty Images
A woman walks past a Burberry store in Hong Kong on February 21, 2014.

Confirming what the market has already been suspecting, Burberry Group said on Friday that the coronavirus was hitting sales in its China region.

Shares of Burberry (LON:UK:BRBY)  fell 1.5% in London after the luxury-goods group said sales in mainland China and Hong Kong had been affected by the outbreak and suggested its fiscal-year guidance (ending March) could shift. The FTSE 100 dropped 0.7% to 7,454.96 as investors faced a weekend that could potentially bring more troubling headlines on the virus that had killed 636 people in China as of Friday.

“Our most recent guidance for the year predates the impact of the coronavirus outbreak,” the company said, adding that its taking steps to mitigate the fallout. Burberry reported that 24 of 64 stores in mainland China were closed, with reduced hours and a sharp fall in foot traffic for the rest.

China has cut off some cities and restricted travel, as other countries have also imposed travel restrictions. The country is an important market for luxury-goods retailers, and investors have been selling shares of companies in the sector—Burberry is down nearly 10% this year.

“Today’s release from Burberry confirms our view that the impact of the virus will be disproportionately more severe for the companies that are still in turnaround mode,” said a team of UBS analysts led by Zuzanna Pusz. They expect a “theoretical 20%” fall in Chinese demand in a single quarter could have a 7% negative impact on earnings per share.

Coronavirus concerns were weighing on the FTSE 100, with oil companies and mining stocks both weaker, as China is a big buyer of natural resources to fuel its economy. BP (NYS:BP)   (LON:UK:BP)  and Royal Dutch Shell (NYS:RDS.A)   (BUE:AR:RDS)  were down over 1% each, while miner Rio Tinto (NYS:RIO)   (LON:UK:RIO)  dropped 2.3%.

The death of a Chinese doctor who sounded the alarm over the epidemic in China has triggered a resurgence in concerns over the country’s grip on the outbreak. The number of infected globally rose to 31,000 and the death toll in China has reached 636. That is as Japan reported 41 new cases of the virus on a quarantined cruise ship.

Among other stocks, shares of Hargreaves Lansdown (LON:UK:HL)  tumbled nearly 5% after the financial services company’s co-founder, Peter Hargreaves, sold 550 million pounds ($712.8 million) worth of shares, according to Barclays Capital Securities Limited.

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