Burberry profits hit by slump in luxury spending
The boss of Burberry has criticised the government for ignoring calls to reverse the “tourist tax” that he blamed for the British luxury group’s lagging performance in its home market.
Jonathan Akeroyd, chief executive, said he was disappointed that Rishi Sunak had not reinstated the 20 per cent VAT shopping refund for foreign visitors, which was scrapped after Brexit, despite lobbying by the sector.
Akeroyd said international tourists were shunning London stores in favour of those on the Continent, as the fashion house warned that earnings could fall at the lower end of previously outlined expectations. The caution sent shares down by 194.5p, or 11.2 per cent, to £15.50 on the FTSE 100 in their steepest one-day drop since the outbreak of the pandemic.
Profit before tax fell by 13 per cent to £219 million in the six months to September 30, from £251 million in the same period last year. The US was the hardest-hit region with sales down 9 per cent during the period, while sales in Europe rose 14 per cent as shoppers swapped London for Milan and Paris.
The UK continued to lag continental Europe in attracting tourism spend compared with pre-pandemic levels “reflecting the withdrawal of VAT refunds in the UK since January 2021”.
Advertisement
If the weaker demand continues, Burberry is unlikely to achieve previously stated revenue guidance of low double-digit growth for the full year, pushing adjusted operating profit towards the lower end of the consensus range of between £552 million and £668 million.
Julie Palmer, partner at Begbies Traynor, said: “Despite its well-heeled customers who can often find a spare bit of cash for a new trench coat, the global slowdown in spending has finally knocked on Burberry’s door.
“Across the world, consumers are feeling the pinch, which means the spend on luxury products is finally starting to wane.
“Like many luxury brands, China and the Far East have been key to the growth story in recent years but there’s been a drastic reversal of fortunes in the second quarter.”
The slowdown in sales came despite the much-anticipated launch of Daniel Lee’s first collection for the brand, which entered stores in September and features the iconic check print and knight-on-horseback insignia.
The creative director’s new line was criticised by Zuzanna Pusz, a luxury goods analyst at UBS, who claimed customer feedback had been “muted” while its price point was “too high for the targeted consumer”.
When Akeroyd was asked if he thought Pusz’s criticisms were fair, the Burberry boss said that the collection had been “really well received by our wholesale clients when we presented it in the showrooms in September”.
He added: “Overall, the response has been very positive but we are in the early days, we’re adapting and we’re adjusting and we’re confident that we’re going to make all of these changes that need to be done.”
Advertisement
Akeroyd is confident in his strategy of putting “Britishness” at the heart of the business and reaching £4 billion of sales in the next three to five years despite macroeconomic challenges.
He 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.”
He laid out his ambitious plans to grow the company’s annual sales, which have never surpassed £3 billion and have lagged behind its European rivals, last November.
To achieve that it has been increasing sales of higher-margin handbags, shoes and other accessories.
Luxury goods feel the pinch
The global luxury goods industry is feeling the pinch as even the world’s wealthiest shoppers start to cut back in the economic downturn (Isabella Fish writes).
The $350 billion sector has seen slowing demand in America and Europe, where rising prices have prompted shoppers — especially younger generations — to pull back from a post-pandemic splurge, while the recovery in China has been uneven.
Burberry, the British luxury retailer best known for its tartan check and trench coats, has warned that it is likely to miss its annual revenue target due to softer spend “clearly related to the inflationary challenges and the cost of living issues”. Its shares, which are down 24 per cent on the year, fell 11.2 per cent yesterday.
Advertisement
Rising inflation and economic uncertainty have curbed shoppers’ appetite for luxury after years of blockbuster demand, prompting investors to trim forecasts across the sector.
Jonathan Akeroyd, chief executive, said the revenue downgrade was “very much geared around the macro”, rather than the response to new products such as the £2,890 medium-sized “Knight” bag.
Shares in LVMH, the world’s biggest luxury group whose brands include Louis Vuitton, Dior and Tiffany, also sank after it reported a slowdown in quarterly sales in October, as did Kering with its Yves Saint Laurent, Balenciaga and Bottega Veneta brands. Cartier-owner Richemont has also predicted slower growth.
The drop-off prompted analysts to lower their outlook for the sector, with many expecting a correction that will bring slower growth in a market that is currently about 25 per cent above 2019 levels.
Angelo Meda, portfolio manager, at Banor SIM, who cut his exposure to luxury earlier this year following downbeat Chinese data, said Burberry was “certainly not an isolated case”. “We haven’t seen anything like this in the luxury space for a long time,” he said.
