Burberry shares take 10% hit on warning of slump in luxury demand

Nov 16, 2023

A warning from Burberry that sales expectations are at risk from a slump in demand for luxury has sent its shares sharply lower.

The company’s stock dived by almost 10% in early trading in London after it admitted that its annual revenue forecast for low double-digit growth was in peril, with profitability suffering too in the event sales failed to pick up over Christmas.

The share price fall was the sharpest seen since early 2020 when pandemic panic gripped financial markets.

Its half-year results, covering the six months to the end of September, showed revenue growth of 4% to almost £1.4bn compared to the same period last year.

Like-for like sales were up 10% but by just 1% in the second quarter reflecting, Burberry said, a sharp slowdown in China where consumer confidence has fallen off a cliff.

The company added that there were no signs of a recovery in its largest growth market, recently revealed to have slipped back into deflation.

Price growth has gone into reverse in China as heavy debts, a troubled property market and a lack of factory orders from overseas take a toll.

Elsewhere globally, rising living costs have tamed demand.

Chief executive Jonathan Akeroyd said: “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.”

The company, which launched the first collection by designer Daniel Lee in September, said early indicators were encouraging and its worries over full-year forecasts were entirely linked to the macroeconomic challenges it was facing.

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Its warnings of a slowdown have been matched by rivals including LVMH.

Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said of Burberry’s update: “The shine is dimming on the luxury sector as even higher end consumers tighten their belts.

“Heralded as a more resilient corner of the economy, suggestions of missing targets and lower-end profits aren’t what investors have come to expect and that has consequences for valuations.

“Specifically for Burberry, it doesn’t have a basket of other brands or products to help diversify risk in this scenario.

“The work the group’s done to become a more premium luxury house is to be commended and will improve strength in the long-term, but there’s no getting away from the fact that particularly aspirational, younger shoppers are thinking twice before swiping their cards.”

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