Burberry issues profit warning on luxury slowdown

British luxury fashion house Burberry has issued a profit warning following weak Christmas trading, sending shares in the group down as much as 14 per cent in early trading on Friday (Jan 12).

In November, the company predicted that adjusted operating profit could be at the “lower end” of its forecast range of £552 million to £668 million.

On Friday, Burberry said 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 £410 million and £460 million.

Burberry is being hurt by a slump in luxury demand triggered by the deflation of a boom in high-end spending that 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 £706 million, compared with £756 million for the same period in 2022.

Burberry shares dropped as much as 14 per cent at the market open before paring around half of those losses by mid-morning.

Burberry is one of a group of companies hit 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.

Luca Solca, a luxury analyst at Bernstein, 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 per cent in its third quarter compared with the same period the previous year, with store sales in Europe, the Middle East, India and Africa falling 5 per cent.

In November chief executive Jonathan Akeroyd said the “challenging macro environment” was “coming across from all regions”, which was “something that is quite unique”.

Although the market has slowed across the board, Solca emphasised that Burberry had felt more of that downward pressure than some of its peers.

“What consumers will do when they start to pause on their spend is that they will concentrate on the master brand at the moment. If your brand is not really at the top of its form, the risk is that it will fall off shopping lists and I think this is what is happening,” he said.

Maxine Kelly and Euan Healy © 2024 The Financial Times

This story was originally published in The Financial Times