Burberry hit by Chinese slowdown; Goldman Sachs profits fall – as it happened

Graeme Wearden

from on 2015-10-15 16:24 (#QHJ7)

All the latest economic and financial news, as fashion firm Burberry warns that demand for luxury goods is fading, particularly in China

5.24pm BST

The European markets have just closed, so let's recap.

Shares in luxury fashion group Burberry have closed down 8.2% after the company warned that demand was slowing, led by falling sales in Asia.

Burberry Group CEO Christopher Bailey will get a pay cut along with other employees after the U.K. trenchcoat maker forecast a second year of declining profit because of weakness in Asia.

The company will cut bonuses and long-term share incentives by as much as 30 million pounds ($46.5 million), Chief Financial Officer Carol Fairweather said on a conference call Thursday. Burberry also plans to trim discretionary costs like travel by 20 million pounds this financial year in response to plummeting sales in China.

Burberry to cut bonuses and share payouts by up to 30 million ($46 million) on weaker sales http://t.co/1IVfkQisnL pic.twitter.com/E7SbkYgQNi

It's been a day of decent gains for London's FTSE-100 with the index adding around 1% by the close. The vast majority of stocks are sitting in positive territory but with concerns continuing to build over the Chinese economy, it's mining stocks that have been left wearing much of the losses. The biggest faller however was Burberry and with some suggestions that China accounts for as much as 40% of sales, that cautionary note about difficult conditions in Asia Pacific in this morning's results has rattled the high end fashion retailer.

On a brighter note, ARM Holdings is finding support as a result of read-across from sector peers, whilst results from Unilever have helped prop up the consumer goods play with Europe's hot summer boosting ice cream sales.

European Closing Prices: #FTSE 6338.67 +1.10% #DAX 10064.8 +1.50% #CAC 4675.29 +1.44% #MIB 22217.69 +1.74% #IBEX 10101.7 +0.64%

5.09pm BST

Over in Italy, the government has approved a growth-friendly, expansionary budget in an attempt to get the country's economy moving faster.

The Italian government has approved a series of business-friendly tax cuts and measures to boost consumer spending that could put Rome in breach of austerity budget rules set by Brussels.

Prime minister Matteo Renzi said a reduction in the main corporation tax rate and cuts to levies on agricultural and industrial equipment were aimed supporting the country's fragile recovery.

4.29pm BST

Greece's biggest thinktank, IOBE, has a stern warning for the country's politicians today - this is your last chance to fix the crisis.

IOBE urged MPs to stick to Greece's bailout plan and implement the economic reforms it needs, as it predicted a less severe recession than feared.

In its quarterly report, IOBE said the economy would shrink by 1.5 to 2.0 percent this year, less than forecast by Greece's international lenders.

It also said the economy could return to growth in the second half of 2016 provided the government takes steps urgently to shore up the battered banking sector, reform Greece's ailing pension system and make the country more business-friendly.

4.21pm BST

There are fresh rumblings of discontent in Greece as the Athens parliament prepares to vote on new austerity measures on Friday.

Around 200 demonstrators from the communist PAME union blocked the Labour Ministry today, carrying a banner reading "hands off the social security system"

3.37pm BST

Newsflash from Volkswagen: the German carmaker is to recall 8.5 million cars across Europe to address the emissions scandal.

This follows Germany's rejection of a voluntary recall this morning.

BREAKING: Volkswagen says it will recall about 8.5M vehicles in 28 EU markets, actively informing customers.

3.29pm BST

The Brazilian currency, the real, has shed 1% against the US dollar since Fitch downgraded Brazil's rating.

3.19pm BST

Brazil has just been downgraded to the brink of junk status by Fitch.

The rating downgrade reflects Brazil's rising government debt burden, increased challenges to fiscal consolidation and a worsening economic growth backdrop. The difficult political environment is hampering progress on the government's legislative agenda and creating a negative feedback loop for the broader economy.

The Negative Outlook reflects Fitch's view that economic and fiscal underperformance is likely to persist while political uncertainty could continue weighing on broader confidence, delay a turnaround in investment and growth, and increase risks for the medium term fiscal consolidation needed for debt stabilization.

Fitch: Brazil is a deteriorating Credit. Also, water wet.

@CVecchioFX S&P is already sub investment grade. Moody's already at BBB- equiv. Fitch is just catching up

3.08pm BST

The FT's Robin Wigglesworth has helpfully tweeted Jack Lew's warning about the debt ceiling:

Um, Lew has moved forward the US Treasury debt ceiling drop-dead date forward to Nov 3..... pic.twitter.com/65SMkxbY8i

2.53pm BST

Burberry's warning of falling luxury goods demand has hit sentiment across the sector, and follows similar problems at LVMH.

My colleague Julie Kollewe explains:

Burberry has blamed a sharp slowdown in sales on a tough market for luxury goods, in particular weaker demand from Chinese customers.

Shares in the FTSE 100 company, known for its British-made trench coats and cashmere scarves, tumbled as much as 12.6% on the news, to 12.36. This is a three-year low, and wiped 800m from Burberry's stock market value. Shares across the luxury sector were hit, including Prada, Hermes, Kering and Salvatore Ferragamo.

2.44pm BST

The opening bell has been rung on Wall Street, and the main indices are creeping higher.

2.26pm BST

The dreaded US debt ceiling is creeping back onto the agenda.

Treasury Secretary Jack Lew has just warned that America will run out of spending wriggle room on November 3rd, two days earlier than expected.

2.00pm BST

Last time Initial Jobless Claims were this low, Richard Nixon was president. http://t.co/ELW8uAceVQ pic.twitter.com/KVmEkGLq11

1.45pm BST

The number of Americans signing on for new unemployment benefit last week has hit a 42 year low.

Just 255,000 American people filed "initial claims" last week, suggesting that US firms are retaining staff.

Applications for US unemployment benefits drop to 42-year low, per @AP; jobless claims fell to 255,000 in latest week, per @Reuters.

1.42pm BST

The cost of living in America was flat last month, according to new inflation data just released.

The US consumer prices index was unchanged year-on-year in September, with cheaper fuel keeping inflation pegged.

Yeah, sure, flat CPI is so much better than -0.1%, even through down from 0.2%. So much closer to a #Fed rate hike. So hawkish

1.29pm BST

America's biggest motorhome maker, Winnebago Industries, has given another warning that some consumers are cutting back.

1.18pm BST

Here's our early news story on Goldman's results:

1.06pm BST

That's a 51% jump in profits at Citi - a year ago, they made just 88 cents per share in the July-September quarter.

1.03pm BST

And here comes Citigroup....and they've beaten expectations, with profits of $1.31 per share, against forecasts of $1.28.

EARNINGS ALERT: Citigroup posts earnings of $1.31 a share vs $1.28 expected http://t.co/B7Lyu6G0S4 $C

12.54pm BST

This is the first time in around four years that Goldman Sachs has missed forecasts, according to the FT:

Goldman posted its first EPS miss since the third quarter of 2011 as trading revenues fell. http://t.co/EdmCCIpMLy $GS

12.49pm BST

Wall Street titan Goldman Sachs has missed Wall Street estimates for profits and revenue in the last quarter.

EARNINGS ALERT: Goldman Sachs Q3 EPS $2.90 vs. $2.91 est; Q3 revs. $6.861B vs. $7.125B est http://t.co/PDznWMkkql

"We experienced lower levels of activity and declining asset prices during the quarter, reflecting renewed concerns about global economic growth.

We continue to see strong levels of activity in Investment Banking and growth in Investment Management, and looking ahead, are encouraged by the competitive positioning of our global client franchise. Our focus on serving our clients and improving operating leverage puts us in a strong position to generate superior returns for our shareholders."

12.34pm BST

It's nearly time for Goldman Sachs' results...

Reminder, $GS earnings historically have a tendency to come out 35 minutes past the hour.... watch this space!

12.25pm BST

Another Volkswagen development - the carmaker has been ordered to recall all its 2.4m vehicles on the road in Germany.

VW has hoped to implement a voluntary recall, in which drivers could have chosen to get the 'defeat device' which cheated emissions tests removed. Berlin, though, wants a compulsory recall.

The decision is likely to mean that all 1.2m vehicles affected by the scandal in the UK will also be formally recalled.

12.02pm BST

The US stock market is expected to open higher in two and a half hours time, following Europe's rally this morning.

US markets look set for a stronger open buoyed by hopes of improved earnings in the banking sector and increased odds of zero percent interest rates for the rest of the year.

11.36am BST

Over in parliament, the UK boss of Volkswagen has repeated his apology to customers over the emissions scandal.

11.16am BST

In other news this morning, the Bank of England has issued new details of the push to split retail banking and investment bank arms.

Banks have been warned that they might have to set aside up to 3.3bn of extra capital, but also told that ringfenced divisions could be allowed to pay a dividend to other units.

one does have to wonder at a prudential rule where the cost of implementation is significantly greater than the additional capital required

10.55am BST

Burberry CFO Carol Fairweather has blamed August's stock market turmoil for the decline in sales in China:

She told reporters:

"We believe this affected the confidence of and thus demand from luxury consumers, and especially the Chinese customers insome of our key markets," Fairweather told reporters."

10.41am BST

Burberry's sales figures look better if you strip out the falling sales in China, and particularly in Hong Kong where they are down 20%.

Here's a breakdown of the last six months:

10.18am BST

David Madden of IG says Burberry shares have "taken a battering this morning":

Burberry took full advantage of the expanding Chinese middle class over the years, and now those middle-income earners will keep shopping more locally from now on.

9.57am BST

Perhaps Boris Johnson can give Burberry's sales a lift?

9.49am BST

European stock markets are shrugging off Burberry's disappointing results.

The main indices are all up nearly 1% this morning, as traders anticipate that central bankers will maintain loose monetary policy for a while.

9.16am BST

Burberry CFO Carol Fairweather also insisted that today's announcement is not a profit warning.

In today's statement, Burberry does say that earnings would be "broadly in line with the average of those analysts who have recently updated forecasts".

8.47am BST

Burberry's shares are on track for its biggest one-day fall since 2012:

And there goes @Burberry , down the most in 3years!! Sfter China hits sales & they downgrade profit forecast pic.twitter.com/xE7Vyv42N1

8.44am BST

Burberry reports falling sales in China and describes market for its luxury wares as "challenging". The company's share price is down 11%.

8.35am BST

Burberry are briefing the media now on a conference call.

Carol Fairweather, chief financial officer, reveals that comparable sales have fallen by 4% in the second quarter of the financial year (July-September), after growing 6% in the first quarter (April-June).

8.26am BST

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, points out that Burberry's problems began in Hong Kong, where sales fell by over 10% in the April-June quarter:

"The news from Burberry is chequered once more, with an underwhelming second quarter not quite sufficient to take the shine from a reasonable first half of the year. However, as can be seen from the share price reaction, the market is in no mood to take prisoners at present.

As with markets in general, the company is naming China as the main culprit, where sales are subject to increasing pressure, washing out also to Hong Kong, where further deceleration is being seen. In addition, the general economic malaise has resulted in uneven demand in the US from both domestic and tourist customers alike.

8.15am BST

Today's selloff has sent Burberry's shares down to their lowest level since April 2013:

8.08am BST

Boom! Burberry's shares have fallen by over 10% , as investors give their verdict to today's disappointing sales figures.

Shares lost 145p to 12.74, wiping around 600m off the company's value.

8.06am BST

The FTSE 100 has jumped by 40 points at the start of trading, driven by hopes that US interest rates will remain at their current lows until the end of the year (at least).

But Burberry's shares haven't traded yet, suggesting market makers are struggling to match bids.....

7.55am BST

Retail analyst Nick Bubb doesn't like the look of Burberry's figures.

Here's his first take:

The worry beforehand was that group performance would be hit by the slowdown in China and the comment that "For full-year 2016, we expect that adjusted profits before tax will be broadly in line with the average of those analysts who have recently downgraded forecasts" is ominous.

The news that first half retail sales were only up by 2% underlying, "in an increasingly challenging environment for luxury customers", implying that Q2 sales were down....

When's a profit warning not a profit warning? When it's Burberry... @NickBubb1 is calling it one. V strange wording http://t.co/tR8hWjC5rB

7.37am BST

China's slowing economy has hit Burberry, and forced the company to speed up its cost-cutting plans.

"The external environment became more challenging during the half, affecting luxury consumer demand in some of our key markets. In response, we have intensified our focus on driving sales and productivity, while taking swift action on discretionary costs.

While mindful of this external volatility, our plans for the festive season position us well to return to a more positive sales trend in the all-important second half. Looking further ahead, we maintain our focus on - and confidence in - the long-term growth opportunities for our business across channels, regions and product categories."

BIG miss @Burberry results...cut FY profit 10 vs 20m, u/lying retail sales +2%, ests +8%. Asia-Pac slows, China particularly challenging

Ouch from Burberry -sales up only 2% on "increasingly challenging environment for luxury"

7.15am BST

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

Stock markets are expected to rally today, as investors decide that the Federal Reserve is increasingly unlikely to raise interest in 2015.

Our European opening calls: $FTSE 6299 up 29 $DAX 9976 up 61 $CAC 4642 up 33 $IBEX 10089 up 51 $MIB 21967 up 129

Stocks rallying because of delay in #Fed rate hike. But the delay is because U.S. economy is bordering on recession. Strange time to rally.

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