Burberry issues a profit warning as the super-rich tighten their wallets

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  • Retailer’s share price fell to the lowest level in three years due to a profit warning
  • It reported weaker demand for its expensive trench coats, bags and scarves

Extravagant: Singer Shakira for Burberry

Extravagant: Singer Shakira for Burberry

British designer Burberry issued a profit warning as the super-rich tightened their wallets over Christmas

The retailer’s share price fell to a three-year low after it reported weaker demand for its expensive trench coats, bags and scarves and wiped out its profit prospects by £100m.

Luxury brands have struggled as wealthy customers began to feel the impact of higher inflation.

It marks a turnaround in fortunes for Burberry, which was riding high two years ago as the super-rich emerged from lockdowns and splashed out on clothes, handbags, shoes and champagne.

At the time, one analyst compared the spending to the Roaring Twenties, an era of decadence and prosperity.

But Russ Mould, investment director at AJ Bell, said: ‘So much for the roaring twenties.

“The idea that wealthier individuals could completely eliminate inflation and cost of living has been thrown into the trash.

‘No sector is completely immune to such pressures and over the past six months we have seen cracks opening in luxury goods as demand declines.’

It was hoped that Christmas would provide Burberry with a reprieve, but no such luck. All eyes are now on Bernard Arnault’s LVMH, which reports in two weeks.

Burberry shares at one point profits fell by as much as 15 per cent, the steepest intraday fall in more than a decade, after forecasting profits for the year ending March 30 between £410m and £460m. Shares fell 5.5 percent, or 75p, to 1,286p.

In November, Burberry, which has 225 stores and 139 concessions, forecast full-year profits at the lower end of a range of £552 million to £668 million.

The heritage label’s stock has fallen about 40 percent in the past six months as the post-Covid surge in Chinese consumers’ luxury spending subsided.

Chief executive Jonathan Akeroyd said trading was “challenging against the backdrop of declining luxury demand”.

Bad luck: Burberry's share price has fallen about 40% in the past six months

Bad luck: Burberry’s share price has fallen about 40% in the past six months

Sales fell 7 percent from £756 million to £706 million in the 13 weeks ended December 30, compared to the same period last year.

“We experienced a further slowdown in our key trading period in December and we now expect our full-year results to be below our previous expectations,” said Akeroyd, who took the top spot in 2022.

“We remain confident in our strategy to realize Burberry’s potential.”

But Mold warned: ‘Unlike the average fashion retailer, cutting prices and hoping bargains entice shoppers is simply not Burberry’s way.

“The luxury goods scene is about trying to get consumers to want something exquisite and premium priced, to give the illusion that it is only available to the elite.”

Luxury rivals are also having a hard time. Gucci owner Kering reported a bigger-than-expected drop in sales in the third quarter, with sales down 9 percent.

Richemont, the owner of Cartier jewelry, missed first-half profit expectations in November. Sales growth slowed to 5 percent in July to September, compared with a 19 percent increase in the April to June period.

Analysts predict that sales at LVMH will decline this year as shoppers stop spending on its designer bags and clothing. The company had reported slowing sales in the third quarter as the post-pandemic boom ended.

Chief Financial Officer Jean-Jacques Guiony said in October that the “roaring years” are over.

Sophie Lund-Yates, analyst at Hargreaves Lansdown, said the “cracks appearing in luxury demand are telling.

“So-called aspirational shoppers are among the demographic groups that are pulling away, and Burberry is more exposed to these types of customers.”

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