Burberry shopping window in Hong Kong
Christmas sales fell flat at Burberry against the backdrop of slowing luxury demand / Image source: Adobe
  • Christmas sales disappoint
  • Full year profit guide downgraded
  • £4 billion revenue ambition maintained

British luxury goods group Burberry (BRBY) has strutted in with a profit warning after Christmas sales fell flat against the backdrop of slowing luxury demand that has also impacted rivals including LVMH (MC:EPA) and Richemont (CFR:SWX).

Burberry had already flagged problems in November as the post-pandemic luxury spending boom continues to fade.

And having seen further sales deceleration in December, the rainwear-to-leather goods seller now expects full-year results to be below previous guidance.

Shares in Burberry, refocusing on ‘Britishness’ under CEO Jonathan Akeroyd and new designer Daniel Lee, tumbled 8% to a two-year low of £12.51 on the downbeat news.

DEMAND SLOWDOWN

In an unscheduled update, Burberry warned the slowdown in luxury demand is negatively impacting trading and it now expects adjusted operating profit for the year to 30 March 2024 in the £410 million to £460 million range, below previous guidance and not helped by currency headwinds.

The London-based luxury fashion house said retail revenue fell 7% to £706 million in the 13 weeks to 30 December 2023 with comparable store sales down 4%.

Burberry suffered sharp sales declines in the Americas and South Korea, although revenues were up in China, a massive market for bling, as well as Japan.

£4 BILLION AMBITION

‘We are continuing to deliver the transition to our new modern British luxury creative expression for Burberry which started appearing in our stores in early Autumn,’ commented Akeroyd.

‘We are still in the early stages of executing on this, which has become more challenging against the backdrop of slowing luxury demand.’

Nevertheless, management remains ‘confident in our strategy to realise Burberry’s potential and we are committed to achieving our £4 billion revenue ambition’, added Akeroyd.

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THE EXPERT’S VIEW

‘So much for the roaring twenties,’ said Russ Mould, investment director at AJ Bell.

‘The idea that wealthier individuals would completely brush off inflation and the cost-of-living crisis has been thrown in the bin. No sector is entirely immune from such pressures and over the past six months or so we’ve seen cracks appearing in the luxury goods sector as demand wanes.’

Mould also pointed out the Americas and South Korea are ‘the biggest problem areas for the group’, judging by store sales trends.

So, what can Burberry do?

‘Unlike your average fashion retailer, it is simply not the Burberry way to slash prices and hope bargains lure in shoppers,’ explained Mould.

‘The luxury goods scene is about trying to make consumers want to have something exquisite and premium priced to give the illusion that it is only available to the elite. Discounting would tarnish the brand. Therefore, Burberry has no choice but to ride out the storm until the wealthier are feeling confident enough to splash the cash once more.’

DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.

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Issue Date: 12 Jan 2024