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Burberry shares sink 9% as luxury spending
slowdown bites
PUBLISHED
THU, NOV 16 20234:46 AM ESTUPDATED THU, NOV 16 202312:25 PM EST
Elliot
Smith
@ELLIOTSMITHCNBC
https://www.cnbc.com/2023/11/16/burberry-shares-sink-9percent-as-luxury-spending-slowdown-bites.html
In its fiscal second-quarter earnings report Thursday,
Burberry reported that comparable store sales growth slowed to just 1%, down
from 18% in the previous quarter, as momentum in China fizzled out.
Softer demand for luxury goods is weighing on
companies around the world, as economic uncertainty and higher inflation
curtail consumer spending on luxury items.
LONDON —
Burberry
shares plunged 9% on Thursday after the
British luxury fashion retailer warned that full-year operating profit will
come in at the low end of forecasts amid a global slowdown in luxury spending.
The company
also cautioned that it may miss its annual revenue projections for low
double-digit growth.
In its
fiscal second-quarter earnings report Thursday, Burberry reported that
comparable store sales growth slowed to just 1%, down from 18% in the previous
quarter, as momentum in China fizzled out.
The company
recorded half-year operating profit of £223 million ($276.64 million), down 15%
from last year, but CEO Jonathan Akeroyd said Burberry was making “good
progress” on its strategic aims.
“We
continued to build momentum around our new creative vision with the launch of
our Winter 23 collection in September, the first designed by Daniel Lee,”
Akeroyd said in a statement.
“While the
macroeconomic environment has become more challenging recently, we are
confident in our strategy to realise our potential as the modern British luxury
brand, and we remain committed to achieving our medium and long-term targets.”
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Softer
demand for luxury goods is weighing on companies around the world, as economic
uncertainty and higher inflation curtail consumer spending on luxury items.
The world’s
largest luxury group, LVMH
, also
reported a quarterly sales slowdown last month, while Cartier-owner Richemont
has warned of weaker growth.
“The
slowdown in luxury demand globally is having an impact on current trading. If
the weaker demand continues, we are unlikely to achieve our previously stated
revenue guidance for FY24*,” Burberry said in its earnings report.
“In this
context, adjusted operating profit would be towards the lower end of the
current consensus range (£552m-£668m)*.”
Along with
the global issues facing the industry, Burberry has been vocal about the
idiosyncratic challenge it is currently facing in the U.K. due to the
government axing VAT-free shopping for international visitors.
Many
British retailers, including Burberry, have called on Prime Minister Rishi
Sunak and Finance Minister Jeremy Hunt to reconsider the decision on what
critics call a “tourism tax.”
The
Americas was also a particular problem for Burberry this quarter, with
comparable store sales falling by 10%.
“The
Americas is Burberry’s worst performer and sorting this out will be top of the
agenda for CEO Jonathan Akeroyd,” said Russ Mould, investment director at
stockbroker AJ Bell.
“In one
sense Burberry shareholders will be reassured to see other luxury peers
struggling as it suggests the company is not facing problems of its own making.
All it can do right now is protect and invest in its brand and wait for an
improvement in the backdrop.”
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