Burberry Warns on Fiscal 2024 Profit, Revenue Targets Due to Luxury Slowdown
Sales and profit growth began retreating in the second half of the year ended Sept. 30.
November 16, 2023, 2:39am
LONDON — Burberry warned that it might not meet its full-year revenue growth target for fiscal 2024, and that adjusted operating profit would be at the “lower end” of the consensus range due to the widespread slowdown in luxury demand.
The British brand, which released fiscal first-half results on Thursday, already began witnessing the impact of that slowdown in the second quarter, with sales growth in mainland China shrinking, and U.S. demand declining further.
The warning sent Burberry shares tumbling 9 percent to 15.82 pounds in late-morning trading, and dragged down other luxury stocks, too.
Burberry fell further during the day, and closed down 9.8 percent at 15.74 pounds on Thursday. 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.
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.
On Thursday, Burberry said that 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.
Growth was fuelled by double-digit gains in Asia Pacific and the EMEIA region, and strong sales of outerwear, trenchcoats and leather bags.
Those figures compare with revenue growth of 17 percent at actual rates and 19 percent at constant rates in Burberry’s first fiscal quarter.
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.
Burberry’s chief executive officer Jonathan Akeroyd said that while the company has made “good progress” against its strategic goals, he noted that the macroeconomic environment has become more challenging.
Despite that, he said “we are confident in our strategy to realize our potential as the modern British luxury brand, and we remain committed to achieving our medium and long-term targets.”
The company added that if the weaker demand continues, it is “unlikely” to achieve its previously stated guidance of low-double-digit revenue growth for fiscal 2024, which ends in March.
If growth does slow, adjusted operating profit for year will be toward the “lower end” of the current consensus range of 552 million pounds to 668 million pounds, Burberry added.
For the full year, company added that it expects a reduced currency headwind of 110 million pounds on revenues, and around 60 million pounds on adjusted operating profit.
Burberry is not alone in suffering from the slowdown in demand due to rising interest rates and 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 and Compagnie Financière Richemont, and brands such as Tod’s, have all witnessed strikingly similar trends in the second half of the calendar year.
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, Jefferies said Burberry’s first-half results “bring 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.
At Burberry, the slowdown began to emerge in the second fiscal quarter, with sales falling short of analysts’ projections. Same-store sales were up 1 percent in the three-month period, compared with consensus projections of 4 percent.
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.
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.