16th Nov 2023 12:16
(Alliance News) - Burberry PLC is battling with headwinds from a slowdown in the global luxury sector, with the market looking to see whether the firm can catalyse growth under its new creative director.
On Thursday, the British fashion house said it is unlikely to achieve its annual revenue guidance amid a slowdown in luxury demand globally.
The update sent its shares tumbling 10% to 1,570.00 pence each in London on Thursday at midday. The stock is down 24% in the year-to-date.
Reporting on its half-year period ended September 30, Burberry said pretax profit fell 13% to GBP219 million from GBP251 million. Adjusted operating profit declined 6.3% to GBP223 million from GBP238 million, as adjusted operating profit margin narrowed to 15.9% from 19.5%.
Revenue grew 3.8% to GBP1.40 billion from GBP1.35 billion a year before.
Retail comparable comparable store sales increased by 10% in the first half, but within this was a sharp slowdown to 1% in the second quarter from 18% in the first. Asia-Pacific sales grow slowed to 2% in the second quarter from 36% in the first. In EMEIA, 10% growth followed 17% growth. In Americas, a 10% decline followed an 8% decline.
"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 warned.
Burberry had expected low double-digit revenue growth for the year.
This will have a knock-on effect on adjusted operating profit, which will be towards the lower end of the current consensus range of GBP552 million to GBP668 million. In financial 2023, Burberry reported a 21% annual increase in adjusted operating profit to GBP634 million.
"Although Burberry's overall momentum is impressive their sales growth in China has slowed considerably, reflecting broader trends in the global luxury industry. Consumer confidence in China remains subdued, and this shows up in sales performance figures from shopping festivals like Qixi and Singles Day, which fell below expectations," observed Yanmei Tang, analyst at Third Bridge.
"Our experts say Burberry might be more adversely affected in China than several other luxury brands because of its positioning as a second-tier fashion luxury brand, targeting a relatively mass audience," Tang continued.
In the UK, Hargreaves Lansdown's lead equity analyst Sophie Lung-Yates noted that the government's decision to halt value-added tax refunds is "denting demand" in an important market.
At the beginning of 2021, international tourists were no longer able to recoup VAT from their purchases. Burberry's Chair Gerry Murphy had slammed the decision as a "spectacular own goal" by the UK government.
"The scheme was an important pull to encourage tourist spending and this revenue-cow now has no more to give. The wider European region is seeing an increase in tourist spending overall which is the shift Burberry wanted to see – American and Asian tourists splashing the cash while taking in Europe's sights is a cornerstone of the business model," Lund-Yates said.
Despite its caution, Burberry increased its interim dividend by 11% to 18.3 pence from 16.5p.
Chief Executive Officer Jonathon Akeroyd said the firm had made "good progress" against its strategic goals. "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," he continued.
Last October, Burberry brought on board Daniel Lee as its new chief creative officer, with the designer having previously been the creative director of Italian luxury brand Bottega Veneta.
Third Bridge's Tang noted that bags and accessories are a category that is "crucial" for Burberry's growth going forward.
"Leveraging Daniel Lee's expertise in bag design could be instrumental, with all eyes on how Burberry will integrate his ideas with their British brand heritage," she added.
Burberry remains strong in the ready-to-wear category, especially in trench coats and winter wear. However, Tang said that experts pointed to a "lack of significant following" when it comes to their fall/winter collection.
"The emergence of high-potential "It bags'' from this collection is yet to be seen," she added.
HL's Lund-Yates concluded: "Burberry has done pretty much all it can to place itself in a better position, both operationally and creatively. The issue is that while it's a slicker and bolder beast, Burberry is currently residing in a hostile environment outside of its control."
By Elizabeth Winter, Alliance News senior markets reporter
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