United Kingdom (Commonwealth Union)_ – Britain’s Burberry (BRBY.L) blamed a worsening slowdown in demand for luxury goods for its second downgrade in three months, warning of a tough challenge ahead as in a blow to its shares, it launches a strategy to move upmarket.
British luxury fashion house Burberry has issued a profit warning following weak Christmas trading, sending shares in the group down as much as 14% in early trading on Friday.
In November, the company predicted that adjusted operating profit could be at the “lower end” of its forecast range of £552mn to £668mn. Burberry said on Friday, that it had “experienced a further deceleration in our key December trading period”, meaning annual profits would probably come in below previous guidance. It is now expecting adjusted operating profit for the financial year to March to be between £410mn and £460mn. Burberry is being hurt by a slump in luxury demand triggered by the deflation of a boom in high-end spending which peaked during the pandemic.
The fashion house reported that retail sales for the 13 weeks to the end of December were down 7 per cent to £706mn, compared with £756mn for the same period in 2022. Burberry shares dropped as much as 14% at the market open before paring around half of those losses by mid-morning.
Burberry is one of a group of companies affected by the slowdown in luxury spending, with the industry’s biggest players, including Richemont and LVMH, warning of falling sales or slowing growth in recent months.
A luxury analyst at Bernstein, Luca Solca, said that Burberry was also struggling with its attempts to “price up” with offerings such as its new handbag collection at a time when consumers have less of an “appetite to pay top dollars for full-price products”. “In a good market, transitioning a brand upwards is very difficult indeed. In a softening demand environment like the one we’re going through now after a few years of post pandemic boom, it’s close to impossible,” he added.
The end-of-year slowdown hit Burberry’s US retail sales particularly hard, sending store sales down 15% in its third quarter compared with the same period the previous year, with store sales in Europe, India, the Middle East, and Africa falling 5%.
Shares in Burberry sank 7.4%, extending losses over the last year to 44%, while LVMH (LVMH.PA) was down 1% and Kering, which is overhauling its star label Gucci, was down 1.4%.
Burberry’s CEO remained confident in its new approach.
CEO since April 2022, Akeroyd told reporters, “We’re very excited about the strategy that we have ahead of us and we’re focusing on execution but if the macro environment slows down for our sector this brings extra challenges.”
He said they did see a deceleration in December. This was really the case with most regions and added that there was a particularly weak performance in the Americas, where comparable store sales fell 15% in its third quarter to Dec. 30.
“Initially that softness came from a more aspirational customer, it’s become a bit broader now,” he said.
LOWER FORECAST
Burberry now expects full-year 2023/24 adjusted operating profit in a range between 410 million pounds ($523 million) and 460 million pounds.
Conflict in the Middle East has added geopolitical uncertainty for luxury brands, to an industry outlook already clouded by inflation, with shoppers in Europe and the U.S. tightening their purse strings while in China, expectations for a strong post-pandemic rebound were derailed by a property crisis.
Burberry said retail revenue in the 13 weeks to 30th December was down 7% at 706 million pounds, with comparable store sales 4% lower.
In the Asia Pacific region, they were up 3% which includes Mainland China where sales rose 8%, but down 5% in Europe.
(This story has been corrected to say profit warning rather than second warning, as the November statement was a downgrade)
