Burberry shares sank on Friday after the luxury retailer cut profit guidance after a poor end of year trading period.
Falling sales in the Americas and EMEA culminated in a 7% drop in reported revenue.
Investors will be concerned whether falling sales are primarily a result of a general slowdown in the luxury sector or if Burberry’s brand is losing its appeal. Today’s announcement doesn’t provide enough information to determine the factors behind falling sales and upcoming results will be poured over for comparisons against their peers.
Nonetheless, the drop in sales meant the group revised its operating profit guidance for the year down to £410m to £460m. The fashion brand has set itself a £4bn full-year revenue target which looks a long way off after today’s update.
Burberry shares sank over 10% to 1,221p in mid-morning trade on Friday.
“So much for the roaring twenties. The idea that wealthier individuals would completely brush off inflation and the cost-of-living crisis has been thrown in the bin. No sector is entirely immune from such pressures and over the past six months or so we’ve seen cracks appearing in the luxury goods sector as demand wanes,” said Russ Mould, investment director at AJ Bell.
“Burberry already flagged problems two months ago and now it says trading has seen further deceleration, meaning full-year results will miss expectations. The Americas and South Korea are the biggest problem areas for the group, judging by store sales trends.
“So, what can it do? Unlike your average fashion retailer, it is simply not the Burberry way to slash prices and hope bargains lure in shoppers. The luxury goods scene is about trying to make consumers want to have something exquisite and premium priced to give the illusion that it is only available to the elite. Discounting would tarnish the brand. Therefore, Burberry has no choice but to ride out the storm until the wealthier are feeling confident enough to splash the cash once more.”
