Burberry shares were down over 9% at the time of writing on the news the ongoing slowdown in the luxury sector had knocked the group’s sales.
The company’s Q2 report, published on Thursday, highlights that, due to more challenging trading conditions, Burberry now expects revenue for the year to fall short of its prior expectations and profits to be at the lower end of consensus expectations.
Like-for-like sales, however, saw a robust 10% rise in the first half, yet the growth decelerated notably in the second quarter, recording a modest 1% increase.
Despite concerns around sales, dividends were increased to 18.3p per share from 16.5p last year.
Due to tougher trading conditions, Burberry anticipates that annual revenue will be below its previous projections, with profits expected to be in the lower range of consensus expectations.
According to Charlie Huggings, Manager of the Quality Shares Portfolio at Wealth Club, Burberry’s slowdown in growth “is not a great surprise. Having splurged on luxury goods in the wake of the pandemic, wealthier consumers are now tightening their belts, meaning the whole sector is starting to feel the pinch,”, he stated.
The report states that in the second quarter, comparable store sales rose by 1%, driven by a 10% increase in EMEIA, a 2% increase in Asia Pacific, and a 10% decrease in the Americas.
According to Huggings, “this reflects a combination of weaker trading conditions and historically weak operational execution in the region. Improving performance here is a key priority for the new CEO, Jonathan Akeroyd, and it will take time to judge. For now, though, it remains a problem, child.”
Adding that, “while the long-term outlook for the luxury sector remains positive, trading conditions are tough right now and appear to be getting tougher. This means the near-term outlook for Burberry and its peers is murky at best.”
Sophie Lund-Yates from Hargreaves Lansdown shared this opinion by commenting that “Burberry has done pretty much all it can to place itself in a better position, both operationally and creatively. The issue is that while it’s a slicker and bolder beast, Burberry is currently residing in a hostile environment outside of its control.”
Colder weather aided Burberry’s sales, as outerwear sales were up 10% in Q2. Leather item sales were up by 3%.