15th Jul 2024 15:12
(Alliance News) - Burberry Group PLC shares plunged on Monday after the company warned on profit, axed its dividend and replaced its under-pressure boss.
Burberry shares slumped 18% to 726.00 pence each in London on Monday afternoon. The stock is down around two-thirds over the past 12 months.
Burberry said Jonathan Akeroyd is leaving the company immediately "by mutual agreement with the board". He will be replaced as chief executive officer by Joshua Schulman, who was CEO of US fashion brand Michael Kors from 2021 to 2022. Shulman previously was CEO and brand president at handbag maker Coach.
Akeroyd had joined Burberry as CEO only in April 2022. The former head of Italian fashion house Gianni Versace Spa and British peer Alexander McQueen, he had replaced Marco Gobbetti in the Burberry hot seat.
Deutsche Bank believes the new boss "faces numerous challenges".
Deutsche Bank analysts commented: "Burberry has made a sensible strategic choice in view to replace the CEO but maintaining Daniel Lee as the creative designer. The early stylistic changes are being pared back, more accessible price points are being introduced and the focus is being returned to the areas such as trenchcoats and scarves where Burberry has brand authority. Investors were becoming increasingly frustrated with the performance at Burberry and looking for a change in strategic direction. We expect that this will start as a gentle turn but will evolve into a larger shift over time.
"On the 1Q conference call, the chairman made it clear that there is no material change in strategic direction and the modern British "true luxury" ambition is maintained. The slight tweaks include reinforcing more of the timeless classics, introducing more accessible price points and increasing brand relevance to the core customer. In our view, the CEO change may be taken well but with the creative director Daniel Lee remaining in place, although we believe this is the right choice, some investors may question whether a complete change was warranted."
Akeroyd's sudden departure came as Burberry issued a profit warning for the first half of its financial year and full-year and said it will suspend dividend payments for financial 2025.
Retail revenue for the 13 weeks that ended June 29, Burberry's financial first quarter, was GBP458 million, down 22% from GBP589 million a year before, it said. Revenue was down 20% at constant foreign exchange rates.
Comparable store sales in the same period were down 21% from a year before. By region, the decline was 23% in Asia Pacific, 16% in Europe, Middle East, India & Africa, and 23% in the Americas.
Within Asia-Pacific, comparable store sales were down 21% in China and 26% in South Korea, but up 6% in Japan.
The sales decline hasn't let up, Burberry said.
"The slowdown in trading we experienced in Q1 FY25 continued into July," the company said. "If this trend were to continue through the current quarter, we would expect to report a H1 FY25 operating loss and FY25 operating profit to be below current consensus."
Burberry said it still will pay the final dividend that it declared for financial 2024, which ended on March 30; however, it will suspend dividend payments for financial 2025 "in order to maintain a strong balance sheet and our capacity to invest in Burberry's long term growth".
"We are taking decisive action to rebalance our offer to be more familiar to Burberry's core customers whilst delivering relevant newness," said Chair Gerry Murphy.
"We expect the actions we are taking, including cost savings, to start to deliver an improvement in our second half and to strengthen our competitive position and underpin long-term growth."
The axed dividend is a sign that "fortunes aren't expected to pick up in the near term", Hargreaves Lansdown analyst Aarin Chiekrie commented.
"Brand weakness extends beyond China, with Europe and the Americas also seeing double-digit revenue declines. There's a lot of work to be done to make up for years of underinvestment in the brand. Unsurprisingly, the shares have taken a big hit in early trading. The new boss has a lot of work to do to steady the ship and prove to investors that calmer seas lie ahead," Chiekrie added.
By Eric Cunha, Alliance News news editor
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