It may be the weakness of the US dollar that weighs on the wider luxury goods sector, but it is the faltering yen that is holding back Burberry.

In today’s first-quarter trading update, the 150-year-old company gave warning on the adverse effect of the Japanese currency for the third time this year — and it appears investors, who nudged the shares lower 2 per cent lower, are finally beginning to take note.

The overall drag from exchange rates on reported growth was 6 per cent. That is wearable in a company enjoying underlying sales growth of 30 per cent, but should not be ignored. It also hurts in a division that is particularly meaningful to Burberry’s fortunes: Japanese licensing, which accounts for one-quarter of group sales, and where gross margins are more than 80 per cent.

The other negative is that same-store sales from Burberry’s retail operations have slowed from 12 per cent in the second-half of last year to 9 per cent.

However, this year’s earnings growth is underpinned by cost savings from its Project Atlas IT overhaul, while, at 21-times this year’s earnings, Burberry is not expensive in the context of the global luxury goods sector.

All the same, investors would be wise to keep as close an eye on the currency markets as they do on Burberry’s continued ability to sell handbags at £1,600 a time.

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