- Luxury demand slowdown weighs
- H1 to remain ‘challenging’
- Wholesale revenue seen 25% lower
Slowing demand for luxury goods continues to impact Burberry (BRBY), whose shares remain firmly out of fashion with investors and cheapened 2.8% to £11.55 on the release of downbeat full-year results.
And with the share price having more than halved over the past 12 months, Burberry is now ‘a screaming takeover target for someone who is able to look beyond current problems and recognise the true value of the brand over the long term’, according to AJ Bell investment director Russ Mould.
The British luxury brand’s operating profit declined by more than a third in the year to March 2024 with margins under pressure and sales slumping in the fourth quarter in its key market of China.
The trench coat-to-tote bag seller warned the first half of the new financial year is likely to ‘remain challenging’ and also expects a full year currency headwind of around £20 million to adjusted operating profit.
BAD NEWS ACROSS THE BOARD
Burberry reported a 4% drop in revenue to £2.97 billion for the year to March, with adjusted operating profit plunging 34% to £418 million, at the lower end of the £410 million to £460 million guidance range but 3% above the £406.8 million consensus estimate.
Last year proved a game of two halves for Burberry, which generated 10% comparable store sales growth in the first half before suffering an 8% decline in the second amid a wider luxury industry slowdown. Burberry is among the fashion giants that have been badly affected with high-end customers becoming more discerning about the brands they buy.
20% CHINA SALES SLUMP
Comparable store sales fell 12% in the fourth quarter, pulled lower by a 19% slump in mainland China, while the Americas region remained soft with comparable store sales down 12% for both Q4 and the year as a whole.
While rainwear-to-leather goods purveyor Burberry expects to see the benefit of cost savings and other turnaround actions from the second half of full year 2025, wholesale revenue is estimated to fall by ‘around 25%’ in the first half.
As Shares outlined in February, the fashion brand behind the iconic Burberry check and Equestrian Knight Device is pulling self-help levers including elevation of the brand to raise margins closer to those of rivals including LVMH (MC:EPA) whilst pushing ahead with store refurbishments.
Julie Palmer, partner at Begbies Traynor (BEG:AIM), said the tough picture for luxury fashion ‘cannot be ignored, with customers in key markets such as China and the US scaling back on discretionary spending as inflation remains at heightened levels, while UK sales haven’t been helped by the removal of tax free shopping. However, Burberry is clearly struggling to cut through the gloom more than most, with today’s estimates that revenues will fall by around a quarter in H1, suggesting the company is now truly on the defensive.’
Palmer added that CEO Jonathan Akeroyd will ‘really need to call on Burberry’s stable of talent to ensure this tricky period is navigated and, certainly for now, annual sales targets of £5 billion look far from being in the bag.’
DISCLAIMER: Financial services company AJ Bell referenced in this article owns Shares magazine. The authors of this article (James Crux) and the editor (Steven Frazer) own shares in AJ Bell.
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