Burberry warns of tough first-half trading as profits fall sharply

Burberry has warned that trading will remain “challenging” after slowing demand for luxury goods hit its full-year profits.

The group, best known for its trenchcoats, said pre-tax profits in the year to the end of March tumbled to £383 million (US$486.21 million; S$652.77 million), from £634 million a year earlier. Revenues dropped 4 per cent to £2.9 billion.

Chief executive Jonathan Akeroyd, who has been in the job for two years, acknowledged that the group had underperformed its expectations but insisted progress had been made “refocusing its brand”.

Burberry remained confident in putting “Britishness” at the heart of the brand and trying to take it more upmarket, he added.

However, it is trying to do so in the face of a much tougher luxury market as the industry’s post-pandemic boom ends. Burberry warned in January that its profits would miss expectations.

Luca Solca, an analyst at Bernstein, said Burberry was “finding it tough to execute its brand development plan against a backdrop of moderating consumer demand”.

Its latest results underlined that Asian and US markets remained grim for the group. Overall like-for-like sales in the fourth quarter dropped 12 per cent year on year.

Sluggish sales in the US reflected a wider industry slowdown including among the very wealthy, not just the pullback from aspirational shoppers “that we saw perhaps just over 12 months ago”, Akeroyd told reporters.

Meanwhile, sales in mainland China increased 2 per cent in the year but fell 19 per cent in the fourth quarter.

“China is clearly a very important market for us,” Akeroyd said, with Asia-Pacific typically accounting for more than 40 per cent of sales. “One of the biggest areas of concern for us is [that] the malls are very quiet. We’ve seen a significant reduction in traffic into most of the malls that we’re working with. I don’t think this is exclusive to us.”

Shares in Burberry were down 3.5 per cent in morning trading on Wednesday (May 15).

Akeroyd, who has been working with creative director Daniel Lee to widen the appeal of the brand, is targeting sales of £5 billion in the long term by selling more higher-margin leather goods, shoes and accessories, such as its Rocking Horse handbags, which can cost £1,890.

He insisted that prices “were balanced” across categories despite some increases, and they were not a deterrent for shoppers. Outerwear and scarves sold well during the year, but men’s and women’s ready-to-wear fashion declined by a mid-single-digit percentage, the company said.

The retailer said it expected currency headwinds to hit revenues by £30 million this year and adjusted operating profit by £20 million. Despite this, it proposed a full-year dividend of 61p.

Burberry’s struggles echo that of Gucci owner Kering, which warned on profits last month and is trying to overhaul its flagship brand during a downturn in luxury spending.

Laura Onita © 2024 The Financial Times

This story was originally published in The Financial Times