Burberry Profit Warning Wipes 19% Off Stock Market Value

on Sep 14, 2012

Shares in Burberry Group Plc (LON:BRBY) fell on Tuesday (September 11) after the London-based luxury goods maker announced that its full-year profit would be lower than some analysts had expected, following a broad slowdown in sales growth. This warning sent the company’s shares down 18.7 per cent, or 257 pence, to £11.18, wiping more than £1.1 billion off its market value and leaving the stock at its lowest point this year.

Burberry reported sales had slowed to a growth rate of 6 per cent in the 10 weeks ending on September 8, from a 14 per cent pace in the previous quarter of the year. The luxury fashion house said that this slowdown means its underlying pre-tax profit for the year to March 31, 2013 would be at the lower end of the previously reported expectation range of £407-454 million.

Angela Ahrendts, Burberry chief executive, said: “As we stated in July, the external environment is becoming more challenging. In this context, second quarter retail sales growth has slowed against historically high comparatives. Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short-term profitability.”

!m[](/uploads/story/366/thumbs/pic1_inline.png)Ms Cartwright, Burberry chief financial officer, also commented on the news, explaining that the number of people entering the brand’s stores had dipped in recent weeks. “It is the last couple of weeks we are particularly referring to – it is actually a very broad-based slowdown,” she said. Although Ms Cartwright stated it was too early to point out the causes for the significant dip in customer traffic, she said that Burberry is not the only luxury goods retailer experiencing a sales slowdown. “We know we are not alone in terms of what we’ve seen in the last couple of weeks,” she said in a phone interview for Bloomberg News, citing conversations with industry rivals. “Traffic is down,” Ms Cartwright concluded.

In recent years, Burberry has been at the forefront of the global surge in demand for luxury clothing and accessories. At the same time, many mid-market retailers have struggled to survive amid the poor economic conditions. But in the past few months, designer brands’ shares have also wobbled over worries about the ongoing Eurozone debt crisis and the slowing growth in emerging luxury goods markets, such as China. According to some analysts, this trend may signal that the high-end luxury goods industry is no longer immune to the weakness in the global economy.

“We have been fans of Burberry, and remain of the view that the strategy, luxury positioning and management team should lead to long-term sector outperformance. Today’s statement does, however, imply a significant slowdown and Burberry is not immune from wider macro-economic turbulence,” said Investec Securities analyst Bethany Hocking, commenting on the recent shares slump of Burberry, which was accompanied in the downtrend by other industry peers. LVMH (EPA:MC) dropped 4.6 per cent in Paris trading, Richemont (ETR:RITB) fell 5.9 per cent in Zurich and PPR (EPA:PP), owner of the Gucci brand, declined as much as 4.3 per cent.
But despite the general downbeat tone of the recent luxury goods industry trend, some designer brands do not seem to suffer from sales decline. Burberry’s French rival, Hermès International (EPA:RMS), who specialise in luxury accessories, even increased its annual sales and profitability targets at the end of August.
Kate Calvert, an analyst at Seymour Pierce, said: “The trend Burberry is talking about may seem at odds with the rest of the sector news of late but we note that this is current news up until September 8 and would not be surprised if other luxury players are seeing similar trends,” she said.