Burberry's Warning Sends Shiver Through Luxury Sector

Tuesday, 11 Sep 2012 09:07 AM

 

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British fashion brand Burberry issued a profit warning on Tuesday, the clearest sign yet that slowing economic growth in China and Europe's debt crisis are bringing a boom in demand for luxury clothes and accessories to a halt.

The company, famous for its raincoats lined with a distinctive camel, red and black check pattern, said it expected underlying full-year profit to be around the lower end of market forecasts.

That sent its shares down 19 percent and dragged down rivals including LVMH, the world's largest luxury goods group.

China has been one of the main drivers of a boom in luxury brands, with consumers eager to buy designer labels, including Burberry's raincoats and other high-end fashions.

But luxury goods firms' shares have wobbled in the past few months over worries about Europe's sovereign debt crisis and slowing growth in China and other emerging markets, where demand for designer brands has managed to offset weaker trends in the United States and Europe.

Morgan Stanley analysts said in a note to clients on Tuesday that Burberry's statement was the first major disappointment for European luxury companies.

Shares in France's LVMH and PPR were both down 4 percent, while Switzerland's Richemont was down 3 percent.

Burberry said comparable store sales didn't grow in the 10 weeks to Sept. 8, the bulk of its financial second quarter, compared with a year earlier. Total sales rose 6 percent, underpinned entirely by new store openings.

That represented a marked slowdown from first-quarter retail revenue growth of 14 percent and comparable store sales up 6 percent.

The company reported a fall in first-quarter sales growth in July, as China slowed.

"Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short term profitability," Chief Executive Angela Ahrendts said on Tuesday.

Analysts had expected Burberry to post pretax profit for the year to March 2013 of between 407 and 451 million pounds ($652-$722 million), with a consensus of 433.21 million, according to a Reuters poll of 18 analysts.

"Burberry's latest results show that even the top end of the market isn't functioning at full capacity in the current economic climate," said Jaana Jatyri, CEO of fashion forecasting company, Trendstop.com.

"The global economic crisis is dragging on and the longer it drags on the less confident even wealthier individuals become. Unfortunately, people lacking confidence do not shop at Burberry."


© 2014 Thomson/Reuters. All rights reserved.

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