Burberry Warns on Fiscal 2024 Profit, Revenue Targets Due to Luxury Slowdown
Updated Nov. 16 2:59 p.m. EST
LONDON — For Burberry and its peers, the slowdown in luxury has been a case of everything, everywhere, all at once.
More from WWD
Similar to its fellow purveyors of fashion and luxury across the Channel, the British brand, which reported its fiscal first half figures, is focusing on its medium- to long-term prospects.
“This is a challenging macro environment coming from all regions, and it’s quite unique,” said Burberry’s chief executive officer Jonathan Akeroyd. “Historically, you’d get a softness in one region, and you’d be able” to compensate for it somewhere else.
That’s not the case this time. Akeroyd said that inflationary challenges and cost of living issues were having a widespread impact, including in Burberry’s home market, which has been affected further by the U.K. government’s repeal of the tax-free shopping.
Burberry’s macro woes dented growth in the second quarter ended Sept. 30, prompting the company to warn that it might not meet its revenue growth target for the 2024 fiscal year, which ends in March.
Burberry had been expecting low-double-digit growth for the full fiscal year, and adjusted operating profit between 552 million pounds to 668 million pounds. Adjusted operating profit could land at the “lower end” of the consensus range, the company said.
As a result of all the downbeat news, Burberry’s shares fell 9.8 percent to close at 15.74 pounds on Thursday. The news weighed on other luxury stocks, too.
Kering shares were down 2.7 percent at the close of trading, while LVMH Moët Hennessy Louis Vuitton and Compagnie Financière Richemont both ended the day down 1.8 percent.
In the first half ended Sept. 30, revenue grew 4 percent at reported rates and 7 percent at constant rates to 1.4 billion pounds. Those figures compare with double-digit growth in the first fiscal quarter, albeit against easier comparatives.
Second quarter retail sales also fell short of analysts’ projections. Same-store sales were up 1 percent in the three-month period, compared with consensus projections of 4 percent.
In the first half, adjusted operating profit was down 6 percent to 223 million. At constant exchange, adjusted operating profit grew 1 percent. Reported profit for the period fell 18 percent to 158 million pounds.
Jefferies described Burberry’s first-half results as bringing to a close “a downbeat [third quarter] luxury reporting season,” and noted that Burberry, similar to its peers, has seen a “mixed start” to the current quarter.
Burberry is certainly not alone in suffering from a slowdown in demand due to rising interest rates, cost of living pressures worldwide, and consumers’ more conservative mindset.
Luxury purchasing is no longer a priority for middle-class, aspirational consumers who have been postponing spending due to multiple macroeconomic pressures.
Luxury groups LVMH Moët Hennessy Louis Vuitton, Kering, Richemont and brands such as Tod’s have all witnessed strikingly similar trends in the second half of the calendar year.
Over the past few months, they have reported tepid U.S. demand, shrinking sales in mainland China, and a strong purchasing appetite on the part of Chinese travelers in Asia.
On Thursday, Burberry had a similar story to tell.
In mainland China, comparable store sales rose 15 percent in the half, with all the growth coming from the first three months. In the second-quarter sales in the region fell 8 percent as spending shifted offshore, according to Burberry.
As a whole, the Chinese shopper cluster grew by 25 percent the three months to Sept. 30 driven by wealthy, traveling Chinese who have been splashing their cash in Japan (where the exchange rate is favorable) and in resorts such as Hong Kong and Macao.
Although Burberry did not comment on current trading, chief financial officer Kate Ferry said the slowdown in mainland China has “extended” into the current quarter, although demand remains robust among Chinese tourists shopping abroad.
The Americas region declined 9 percent in the first half, and 10 percent in the second quarter.
The EMEIA region, which takes in the Middle East, India and Africa, has been recovering due mainly to a pickup in U.S. and Asia Pacific tourism in Continental Europe. Comparable stores sales were up 14 percent in the half, while in the second quarter, that growth was 10 percent.
The U.K. is still lagging Continental Europe due to the repeal of the tax-free program, which gives breaks to high-spending tourists.
As reported, Burberry and other high-end British brands and industry organizations have been lobbying to have tax-free shopping reinstated, and are hoping the U.K. government makes the change as part of its autumn budget, which is due to be released on Nov. 22.
In the first six months, outerwear comparable store sales grew 21 percent in the half, and 10 percent in the second quarter, driven by Heritage rainwear, Burberry said.
Leather goods comparable store sales grew 8 percent in the half and 3 percent in the second quarter, with bags, and especially the Vintage Check collection, showing the most growth.
Burberry said the new bag pillars launched at the end of the period have been gaining traction, particularly the Knight bag and Trench tote.
Ready-to-wear, excluding outerwear, was up 6 percent in the half with men’s up 6 percent, and women’s increasing 7 percent. Akeroyd said chief creative officer Daniel Lee’s debut runway collection has been on shop floors for six weeks, and it was too soon to talk about bestsellers and consumption trends.
Despite that, Akeroyd said the company was “confident” in its strategy to realize its potential “as the modern British luxury brand, and we remain committed to achieving our medium- and long-term targets.”
He added that Burberry would continue to invest, pursue its marketing campaigns and continues to see “opportunities across all product categories.”
He said the Burberry Streets campaign has been receiving a positive response, especially in South Korea where the pop-up stores were sold out. “We will very much be keeping the focus on our new products,” he said.
As reported in May, Burberry plans to invest about 120 million pounds in fiscal 2024 to accelerate its store refurbishment program, and is planning to have updated 50 percent of its network, roughly 55 stores, by the end of the fiscal year.
Ferry noted that Burberry’s 4 billion pounds revenue target for the medium term, and 5 billion pounds goal for the long term, at constant exchange rates, had not changed.
Best of WWD
