Burberry Issues Profit Warning Amid Luxury Goods Decline
BRBY 
The British luxury fashion brand Burberry has issued a profit warning as a result of a significant decline in demand for luxury goods, particularly in the Americas. This warning marks the company’s second downgrade since November, reflecting the challenging macro environment for luxury retailers. Burberry’s CEO, Jonathan Akeroyd, expressed confidence in the company’s strategy despite the headwinds, emphasizing a focus on execution. However, the CEO also acknowledged the extra challenges posed by a potential slowdown in the macro environment for the luxury goods sector.
In the 13 weeks leading to December 30, Burberry reported a 7% decrease in retail revenue, amounting to £706 million. This decrease was attributed to a 5% drop in sales in Europe and a 3% rise in the Asia Pacific region, with mainland China experiencing an 8% sales increase. However, despite these regional variations, Burberry’s shares plummeted by 7.4%, extending losses over the past year to a staggering 44%.
Burberry’s adjusted operating profit for the full year 2023/24 is now expected to be in the range of £410 million to £460 million, a significant decrease from the £634 million reported in 2023. Furthermore, the company aims to achieve a revenue target of £4 billion, signaling a substantial increase from the £3.1 billion earned in 2023. These financial adjustments underscore the profound impact of the softer sales experienced by Burberry, particularly during the holiday season.
The company’s repositioning as “modern British luxury” under designer Daniel Lee has faced difficulties, as evidenced by the recent sales slowdown. Despite these challenges, Burberry remains committed to its strategic direction and revenue goals, demonstrating resilience in the face of the current market pressures. The warning from Burberry has also triggered a selloff in the luxury sector, highlighting the broader implications of the company’s performance on the industry as a whole.
Impact of Declining Luxury Goods Demand on Burberry’s Performance
Burberry Group PLC has been significantly affected by a waning demand for luxury goods, particularly in the United States. The company’s CEO, Jonathan Akeroyd, emphasized a clear drop in luxury goods demand, affecting most regions where Burberry operates. This decline has led to a notable 15% slump in revenue from the Americas, underscoring the severity of the impact. The warning issued by Burberry has triggered a selloff among peers, wiping out as much as $7 billion from the sector and highlighting the broader implications of the company’s performance on the industry as a whole.
The industry-wide slowdown in luxury goods demand has been attributed to various factors, including shoppers’ hesitance towards higher prices from luxury brands and the impact of inflation on affluent consumers. Notably, larger luxury brands like Richemont, LVMH, and Kering SA have also reported weaker demand, contributing to the sector’s overall decline. Additionally, the industry’s growth is expected to decelerate to as much as 4% from 8% in 2023, according to consultancy Bain estimates. Burberry’s efforts to revive its performance, particularly through the appointment of designer Daniel Lee, have yet to yield significant results, further exacerbating the company’s challenges.
The company’s adjusted operating profit for the year through March is now anticipated to be between £410 million and £460 million, down from the previous forecast of as much as £668 million. Moreover, Burberry aims to achieve a revenue target of £4 billion, signifying the company’s determination to rebound from the current setbacks. These adjustments underscore the profound impact of the declining luxury goods demand on Burberry’s financial outlook and strategic direction.
Financial Impact and Strategic Response
The recent financial disclosures from Burberry highlight the profound impact of softer sales on the company’s performance. Retail revenue for Burberry Group PLC experienced a 7% year-over-year decrease on a reported basis and a 2% decrease on constant currencies, amounting to £706 million. The decline was further underscored by a 4% year-over-year decrease in comparable store sales and a 2% year-over-year rise in contribution from space in the nine months ended-FY23.
Regionally, the Asia Pacific market saw a 3% year-over-year increase in comparable store sales, while Europe, the Middle East, India, and Africa (EMEIA) and the Americas experienced declines of 5% and 15% year-over-year, respectively. In Q3 FY24, Mainland China, South Asia Pacific, and Japan registered year-over-year increases in comparable store sales, while South Korea witnessed a decline. These regional variations underscore the complex dynamics impacting Burberry’s global operations.
The company’s shares were down 7% in morning trading, extending losses over the last year to 44%, significantly impacting luxury stocks like LVMH Moet Hennessy Louis Vuitton SE and Kering SA. Burberry’s adjusted operating profit for FY24 is now expected to be in the range of £410 million to £460 million, reflecting a substantial decrease from the previous year. Despite these challenges, Burberry remains committed to achieving a revenue of £4 billion, signaling a determination to rebound from the current setbacks.
Burberry anticipates a decline in wholesale revenue by a high-single-digit percentage in fiscal 2024, as well as a currency headwind of approximately £120 million to revenue and £60 million to adjusted operating profit. Additionally, the company expects a capital expenditure (capex) of around £200 million in FY23, having completed a £400 million share buyback as of October 31, 2023. These financial projections and strategic responses underscore Burberry’s proactive approach to navigating the evolving market conditions.
The information provided is for educational and informational purposes only. It should not be considered as financial advice.