Burberry’s Profit Expectations Drop Amid Falling High-End Demand

Summary

  • CEO Jonathan Akeroyd’s turnaround effort for Burberry has suffered a significant setback as the brand tries to adapt to a more upscale market under the creative direction of Daniel Lee.
  • Following a slowdown in its crucial December trading season, Burberry now anticipates that the full-year adjusted operating profit will amount to between £410 million ($523 million) and £460 million.
  • Major competitors, including French luxury giants LVMH and Kering have also seen a dip in demand for premium quality products in crucial markets including the US, Europe, and China.
  • Burberry’s retail revenue for the 13 weeks leading up to December 30 dropped by 7% to £706 million, with a 4% decline in comparable store sales.

Difficulties at Burberry and the Luxury Retail Industry

Akeroyd’s vision to elevate Burberry’s market position under the innovative guidance of designer Daniel Lee has been significantly impacted by the recent warning. Lee introduced his initial collection merely months prior, in September.

Depressed Profit Expectations

Burberry is facing a tough trading season in December, forcing the company to downgrade its full-year adjusted operating profit forecasts to between £410 million and £460 million. Earlier, the company had guided the operating profit would hover around the lower end of calculations between £552 million and £668 million.

Decreased Demand Among Competitors

Renowned competitors, spearheaded by French luxury brands LVMH and Kering , saw a declining demand for high-end products in vital territories like the US, Europe, and China due to the post-pandemic fatigue.

Geopolitical Uncertainty Adds to Challenges

The ongoing strife in the Middle East coupled with inflationary pressures have cast a cloud of uncertainty over the luxury retail industry. Customers in the US and Europe are holding back on spending, while the expected post-pandemic revival in China has been affected by a property crisis.

Burberry’s Performance in Key Markets

Burberry, which has seen a 39% drop in its shares during the past year, registered a 7% decrease in retail revenue in the 13 weeks leading up to December 30. The revenue was £706 million, with comparable store sales decreasing by 4%. Although there was a 3% growth in the Asia Pacific region, Europe recorded a 5% fall, and in the Americas, the drop was 15%.

The exchange rate used for conversion is ($1 = £0.7833).

These financial updates from Burberry and other luxury retailers, which are witnessing slower than expected recovery, may have implications on forex trading, affecting relevant currency pairs such as GBP/USD or EUR/GBP.

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