On Thursday, Burberry shares experienced a 9% decline as the British luxury fashion retailer issued a warning that its full-year operating profit is anticipated to be at the lower end of forecasts due to a global slowdown in luxury spending.
The company also expressed concerns that it might fall short of its annual revenue projections for low double-digit growth.
In its fiscal second-quarter earnings report, Burberry disclosed that comparable store sales growth decelerated to just 1%, a significant drop from the 18% reported in the previous quarter, as momentum in China waned.
Burberry's half-year operating profit amounted to £223 million ($276.64 million), reflecting a 15% decrease from the previous year. Nonetheless, CEO Jonathan Akeroyd emphasized the company's "good progress" in achieving its strategic objectives, particularly with the launch of its Winter 23 collection designed by Daniel Lee.
Akeroyd acknowledged the challenging macroeconomic environment but expressed confidence in Burberry's strategy to establish itself as a modern British luxury brand. The company remains committed to realizing its medium and long-term targets.
The softer demand for luxury goods is impacting companies globally, with economic uncertainty and increased inflation limiting consumer spending on high-end items. LVMH, the world's largest luxury group, reported a quarterly sales slowdown, and Richemont, the owner of Cartier, warned of weaker growth.
Burberry highlighted the impact of the global luxury demand slowdown on its current trading. If this weaker demand persists, the company is unlikely to achieve its previously stated revenue guidance for FY24. In this context, the adjusted operating profit is expected to be toward the lower end of the current consensus range (£552m-£668m).
In addition to global challenges, Burberry emphasized a unique challenge in the U.K. due to the government's elimination of VAT-free shopping for international visitors. The Americas posed a particular challenge for Burberry in the quarter, with comparable store sales declining by 10%.
CEO Jonathan Akeroyd is expected to prioritize addressing issues in the Americas. Analysts suggest that Burberry shareholders may find reassurance in the broader struggles faced by luxury peers, indicating that the company is not grappling with problems of its own making. The focus for Burberry now is to safeguard and invest in its brand while waiting for an improvement in the overall backdrop.
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