Burberry results reflect global slowdown in luxury
Burberry revealed a 7% increase in revenue for the 26 weeks to 30 September but warned that the slowdown in luxury demand globally is having an impact on current trading and, should it continue, the British luxury house was "unlikely to achieve [its] previously stated revenue guidance for FY24".
Revenues for the period reached almost £1.4 billion and the business had been expecting to achieved a low double-digit growth in revenue for the full year, but this was now uncertain. It also stated that if the slowdown continued its adjusted operating profit would be towards the lower end of the current consensus range of £552m-£668m for the full year.
Half-year adjusted operating profits were down 6% to £223 million giving an operating margin of 15.9%. During Q2 comparable store sales increased 1%, with EMEIA +10%, Asia Pacific +2% and Americas -10%, reflecting the recent slowdown in demand, particularly in China.
Despite the challenging global conditions Burberry CEO Jonathan Akeroyd said the business was confident in its medium to long term strategy of creating a "modern British luxury brand" with the ultimate ambition of achieving annual sales of £5 billion.
"We made good progress against our strategic goals, executing our priorities at pace. We continued to build momentum around our new creative vision with the launch of our Winter 23 collection in September, the first designed by [chief creative officer] Daniel Lee. 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," Akeroyd said.
To mark Daniel Lee's second collection for the house, which will hit stores for spring, Burberry executed several high profile "city takeovers" around the globe, including in London where it rebranded tube stations and a typical British café among other immersive installations, resulting in widespread press and social media attention.
These activations served to solidify the brand's identity under Daniel Lee's creative direction which is centred on heritage and Britishness and celebrates house codes such as the iconic check and knight motifs. Core products continued to sell well for Burberry during the period, in particular its trench, while it also strengthened its offer in the important categories of bags and footwear.
"Outerwear comparable store sales increased 21% in the half. This was driven by the strong performance of Heritage rainwear across both men's and women's. Leather goods comparable store sales advanced 8%, led by 14% growth in bags with ongoing momentum in icons such as the Vintage Check and new shapes introduced for Winter 23 such as the Knight bag and Trench tote gaining traction. In parallel, we continued to expand and evolve ready-to-wear, and introduced a more complete shoe offering," the brand said.
Its beauty business had an "excellent" first half, aided by the launch of the new Goddess fragrance and the house continued to overhaul its global store estate opening or refurbishing 33 stores in the half including New Bond Street London, Rodeo Drive Los Angeles and Omotesando Tokyo. Financials of the updated stores continue to show both store productivity and AUR up mid-teens percentage against equivalent existing stores, the brand said. Its website was also refreshed.
Responding to the results Charlie Huggins, Manager of the Quality Shares Portfolio at Wealth Club, commented: “Burberry's sales growth slowed significantly in the second quarter, as trading conditions became much more challenging. This is not a great surprise. Having splurged on luxury goods in the wake of the pandemic, wealthier consumers are now tightening their belts meaning the whole sector is starting to feel the pinch.
"Chinese consumers are vital for the luxury sector but spending from this cohort appears to be slowing. China's economy is struggling, with its real estate sector in a fine mess and this appears to be filtering through to Chinese consumer sentiment.
"The American consumer also remains weak with Burberry's Americas sales down 10% in the second quarter. This reflects a combination of weaker trading conditions and historically weak operational execution in the region. Improving performance here is a key priority for new CEO, Jonathan Akeroyd and will take time to judge. For now though, it remains a problem child.
"While the long term outlook for the luxury sector remains positive, trading conditions are tough right now and appear to be getting tougher. This means the near term outlook for Burberry and its peers are murky at best."
Shares were down 8.2% on early trading to 1,601p.