Burberry sales dealt a blow as luxury opts for rain check
Burberry blamed a worsening slowdown in demand for luxury goods for its second downgrade in three months and warned of a tough challenge ahead as it launches a strategy to move upmarket, in a blow to its shares.
The UK fashion house’s latest warning is a major setback to CEO Jonathan Akeroyd’s turnaround plan as he tries to lift the brand under the creative guidance of designer Daniel Lee, whose first collection was introduced last September.
The global luxury sector, including French luxury group LVMH — which owns Louis Vuitton and Dior — Kering and privately owned Chanel, is being hit by softening demand.
However, for Burberry, the timing is particularly tough. Its new look is aimed at stoking interest in the brand with better quality, higher-priced products, such as the £2,890 (about R69,000) medium-sized leather “Knight” bag.
Burberry shares sank 7.4%, extending losses over the past year to 44%, while LVMH was down 1% and Kering, which is overhauling its star label Gucci, was down 1.4%.
Investors will learn more about the state of the sector with updates from Kering on February 8 and Hermes on February 9.
Still, Burberry remains confident in its new approach. “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,” Akeroyd, CEO since April 2022, told reporters.
“We did see a deceleration in December ... This was really the case with most regions,” he said, adding that there was a particularly weak performance in the Americas, where comparable store sales fell 15% in its third quarter to December 30.
“Initially that softness came from a more aspirational customer, it’s become a bit broader now,” he said.
Burberry now expects full-year 2023/24 adjusted operating profit in a range of £410m-£460m. In November, it said the key profit number would be towards the lower end of analysts’ forecasts of £552m£668m at the time.
For luxury brands, conflict in the Middle East has added geopolitical uncertainty to an industry outlook already clouded by inflation.
Shoppers in the US and Europe are tightening their purse strings while expectations for a strong postpandemic rebound in China were derailed by a property crisis.
Burberry said retail revenue in the 13 weeks to December 30 was down 7% at £706m, with comparable store sales 4% lower.
They were up 3% in the Asia-Pacific region, which includes mainland China where sales rose 8%, but down 5% in Europe.
“The cracks appearing in luxury demand are very telling. So-called aspirational shoppers are one of the demographics pulling back, and Burberry is more exposed to this type of customer than super-high-end luxury,” said Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.