Two sides of a weak pound: Burberry gains, Ryanair suffers

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LONDON (AP) — The economic repercussions of the plunge in the British pound were on display Tuesday as the currency's drop helped boost sales at luxury goods maker Burberry but triggered a profit warning from budget airline Ryanair.

In simple terms, a weaker pound helps British exporters because it makes their goods cheaper abroad and hurts importers because foreign goods become more expensive in the U.K.

Burberry, which is based in Basingstoke, England, and reports its earnings in pounds, said first-half revenue rose 5 percent because of the U.K. currency's decline against the dollar, euro and yuan. Meanwhile, Dublin-based Ryanair, which gets 26 percent of its sales from Britain but reports in euros, said profit would grow slower than previously forecast.

"There are clear winners and losers from the fallout in the pound," said Jasper Lawler of CMC Markets.

The pound has lost nearly a fifth of its value against the dollar since Britain's vote on June 23 to leave the European Union. That has boosted the value of overseas sales when they are converted back into the U.K. currency. For foreign companies like Ryanair the reverse is true unless they can raise prices in Britain.

British consumers were squeezed by these competing forces last week when Tesco, the country's biggest supermarket chain, pulled the popular breakfast spread Marmite and other products made by consumer goods giant Unilever off its website when the Netherlands-based company maker sought to raise prices. The two companies settled the dispute on Thursday without disclosing the terms.

Burberry said Tuesday that it benefited from the pound's weakness, reporting that revenue rose to 1.16 billion pounds ($1.42 billion) in the six months ended Sept. 30, from 1.1 billion pounds in the same period last year.

The company got and added boost as tourists from countries such as China and the U.S. flocked to London to take advantage of their increased buying power. Sales at British shops open for more than a year rose by more 30 percent in the three months to Sept. 30.

Bag sales were particularly strong, especially those of the equestrian inspired Bridle Bag.

Burberry said the pound's weakness should add at least 125 million pounds to full-year adjusted profit based on Oct. 12 exchange rates.

However, on an underlying basis, which excludes the impact of currency exchange rates, revenue fell 4 percent, a weak result that saw Burberry shares slide 7 percent.

"Unfortunately, the U.K. makes up a relatively small percentage of Burberry's sales," said George Salmon, an equity analyst at Hargreaves Lansdown. "So while the group has managed to deliver improving like-for-like growth in its stores this quarter, this was achieved against a pretty unchallenging comparative period. Conditions remain difficult."

Meanwhile, Ryanair cited the slump in the pound as the airline cut its forecast for fiscal 2017 earnings by 5 percent. Ryanair said it now expects to report net income of 1.3 billion euros to 1.35 billion euros ($1.43 billion), still 7 percent better than in 2016.

The pound's drop means that average second-half fares will fall by between 13 percent and 15 percent, compared with the previous forecast of 10 percent to 12 percent, the airline said.

"The recent sharp decline in (the pound) post Brexit will weaken second half yields by slightly more than we had originally expected," Chief Executive Michael O'Leary said in a statement. "We would caution that this revised guidance remains heavily dependent upon no further weakness in second half fares or (the pound) from its current levels."


Shawn Pogatchnik in Dublin contributed to this story.

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