Burberry profits slide as luxury demand weakens

Burberry’s (BRBY) shares have fallen more than 8% this morning, Thursday November 16, after the fashion house said it is unlikely to achieve its annual revenue guidance amid a slowdown in luxury demand globally.

Burberry shares were down about 145p to 1,600p each. Over the past 12 months, the stock is down 21%.

Jelena Sokolova, senior equity analyst at Morningstar, explains that the slowdown for Burberry has hit most of its luxury peers, and it’s “still too early to say if Daniel Lee's collections change the momentum of the brand meaningfully as they only started hitting the stores at the end of Q2”.

That said, Morningstar has increased its fair value estimate for Burberry, from 2,090p per share to 2,460p.

Revenue increased by 7% at constant exchange rate for the first half of the year, with 10% growth in comparable store sales growth (11% in company compiled consensus).

Strong growth in the first quarter (18% comparable store sales) was followed by significant moderation in the second quarter (1% comparable store sales growth), which is towards the mid-range of luxury peers for this quarter.

Sokolova says: “Demand in Americas remained very weak (down 10% on comparable store sales – slight sequential deceleration from -8% in the first quarter) and aligned with what we have been cautioning about for the last year.”

Comparable store sales in Asia also decelerated to 2% on more challenging comparison base with no impact of lockdowns in China in the second quarter last year. Sales to Chinese consumers were up 25% but with more tourist spending (-8% in mainland China in the quarter due to shift to spending abroad). Sales in EMEA and India were up 10% helped by tourist buying. Wholesale sales were down 8% on weakness in North America.