Burberry on Thursday said it is unlikely to achieve its sales goals for its current fiscal year due to a global slowdown in spending on luxury goods that has seen the world’s top fashion houses and luxury goods companies suffer.
The London headquartered company, which was founded in 1856, said falling sales in America and a major slowdown in China saw its comparable-store sales increase by just 1% in the Sept. 30-ending second quarter, compared to 18% growth in the first quarter of the year.
Burberry shares
BRBY,
fell 8% on Thursday having lost 21% of their value over the previous 12 months.
The British fashion house told investors that if the slowdown in luxury spending continues, it is now unlikely to hit its revenue targets for the financial year ending in March 2024, as it warned that its profits will likely be at the lower end of analysts’ forecasts as a result.
Burberry’s 1% growth in the second quarter also saw it fail to meet analysts’ expectations, following forecasts from 19 analysts polled by the fashion house itself that it would post 4% growth.
Top luxury goods sellers, including Gucci owner Kering
KER,
and LVMH Moet Hennessy Louis Vuitton
MC,
have seen their sales start to slow in recent months, following the end of a post-COVID boom in demand for expensive products.
Burberry, which is best known for its iconic trench coats, reported a 10% drop in sales in the Americas and an 8% drop in sales in mainland China, compared to 46% growth in the first quarter, as Chinese customers shifted their spending to outside the country.
Slower sales in China and South Korea saw growth in its Asia Pacific business, which accounts for 49% of Burberry’s revenues, slow down from 36% in the first quarter to just 2% in the second quarter.
“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,” said Yanmei Tang, an analyst at research firm Third Bridge.
Higher sales to tourists, however, buoyed Burberry’s revenues in its Europe, Japan, and South Asia Pacific regions. The situation saw tourists, who were mainly from China and America, account for 51% of Burberry’s sales in the first half of the year.
Burberry noted that its sales were weaker in the U.K. than in continental Europe due to the British government’s January 2021 decision to halt VAT refunds for visitors to the country from outside the European Union.
“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,” said CEO Jonathan Akeroyd.
The company also said “early indicators are encouraging” around the performance of British designer Daniel Lee’s debut collection for the fashion house, after he joined the company as its chief creative officer in September 2022.
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