Burberry, the renowned London-based fashion house established in 1856, is facing obstacles in achieving its sales targets for the current fiscal year. The global decline in luxury goods spending has affected top fashion houses and luxury brands alike.
In the second quarter ending on September 30, Burberry experienced a meager 1% increase in comparable-store sales, compared to an impressive 18% growth in the first quarter. This can be attributed to the decrease in sales in America and a significant slowdown in China.
The value of Burberry shares (BRBY) fell by 8% on Thursday, following a 21% decrease over the past 12 months.
As a result of the ongoing luxury spending slowdown, Burberry notified its investors that hitting revenue targets for the financial year ending in March 2024 is now unlikely. The company also anticipates that its profits will align with the lower end of analysts’ predictions.
Furthermore, Burberry’s second quarter growth of 1% fell short of expectations. Despite forecasting a 4% growth, based on the insights from 19 analysts surveyed by the company, Burberry failed to meet these projections.
Other prominent luxury goods sellers, including Kering (KER), the owner of Gucci, and LVMH Moet Hennessy Louis Vuitton (MC), have experienced a deceleration in sales over the past few months. This slowing trend follows the end of a post-COVID surge in demand for high-end products.
In specific regions, Burberry encountered a 10% drop in sales in the Americas and an 8% decline in mainland China. This slump is significant given the substantial 46% growth achieved in the first quarter. Chinese consumers have shifted their purchasing patterns to outlets outside their country’s borders.
Despite these challenges, Burberry remains committed to overcoming this setback and striving for future success in the luxury fashion market.
Slower Sales in Asia Pacific Impact Burberry’s Revenues
Sales growth in Burberry’s Asia Pacific business, which contributes to almost half of the company’s revenues, slowed down significantly in the second quarter. While the first quarter showed a growth rate of 36%, the second quarter only saw a marginal increase of 2%. This decline in growth is primarily attributed to slower sales in China and South Korea.
Yanmei Tang, an analyst at research firm Third Bridge, suggests that Burberry may face more significant challenges in China compared to other luxury brands. This is possibly because Burberry positions itself as a second-tier fashion luxury brand that targets a relatively mass audience.
Boosted Revenues from Tourists in Europe and South Asia Pacific
Despite the slowdown in the Asia Pacific region, Burberry experienced higher sales among tourists in other parts of the world. The European, Japanese, and South Asia Pacific regions saw an increase in revenues thanks to tourists. Notably, Chinese and American tourists played a significant role, accounting for 51% of Burberry’s sales during the first half of the year.
Challenges in the U.K. Market
Burberry faced weaker sales in the U.K. compared to continental Europe due to a government decision. In January 2021, the British government chose to halt Value Added Tax (VAT) refunds for visitors from outside the European Union. This decision adversely affected Burberry’s sales in the country.
Confidence in the Future
Despite facing economic challenges, Burberry’s CEO Jonathan Akeroyd remains confident in the company’s strategy to position itself as a modern British luxury brand. Akeroyd emphasizes that they are committed to achieving their medium and long-term targets.
Promising Debut Collection by Daniel Lee
Burberry reports positive early indicators regarding the performance of their British designer, Daniel Lee. Lee joined the company as its chief creative officer in September 2022. The fashion house is encouraged by the reception of Lee’s debut collection and looks forward to his continued contributions.
Overall, Burberry acknowledges the fluctuating market conditions but remains optimistic about their potential as a leading luxury brand.