Shares in Burberry (BRBY) fell over 8% to £16.03 in morning trading as the luxury goods group reported pre-tax profits of £219 million for the 26 weeks to 30 September compared to £251 million in the same year-ago period.

The London-headquartered fashion house blamed its weak performance in a slowdown in spending in the luxury goods market.

‘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’, said Julie Palmer, partner at Begbies Traynor. 

‘Across the world, consumers are feeling the pinch which means the spend on luxury products is finally starting to wane.

‘For Burberry, this means it’s unlikely to meet guidance for the full year after a noticeable deceleration of sales growth in the first half.’

SALES ACROSS AMERICAS DOWN 10%

Demand has softened particularly across the Americas, where sales fell 10% versus a year ago, while even previously robust shopping habits by well-heeled Chinese consumers is weakening. Asia-Pacific sales nudged just 2% higher, helping to offset ‘satisfactory performance’ across its outwear and leatherwear categories. 

‘The Americas is Burberry’s worst performer and sorting this out will be top of the agenda for CEO Jonathan Akeroyd,’ said Russ Mould investment director at AJ Bell.

There were a few glimmers of hope for shareholders as the luxury goods group announced the completion of their £400 million share buyback programme (at the end of October) – with £200 million completed in the first half, and a 11% increase in its interim dividend of 18.3p.

INVESTING THROUGH THE CHALLENGES

Burberry also said it was making ‘continued investment in distribution, opening or refurbishing 33 stores’ and refreshed its website ‘in line’ with their ‘new creative vision.’

But is this enough for the luxury products group going forward?

The macroeconomic environment has indeed been a challenge in 2023 for Burberry and its reliance on wealthy Chinese consumers buying its luxury goods.

‘The more challenging macroeconomic environment has taken its toll on management's guidance for full year 2024, with prior revenue guidance unlikely to be met and guidance for adjusted operating profit moving to the lower end of consensus expectations despite a reduced currency headwind now being predicted’, says Russell Pointon, director of consumer at investment research firm Edison.  

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DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The author of this article (Sabuhi Gard) and the editor (Steven Frazer) own shares in AJ Bell.

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