Burberry shares were down heavily on Thursday after the luxury brand suggested the macro environment was not conducive to substantial growth in the year ahead.
Reported operating profit rose 21% in the year to 1st April compared to the year prior. The company benefited from returning tourists after the pandemic and removing restrictions in mainland China.
Although the brand enjoyed the return of Chinese tourists, the associated jump in sales activity may prove transitory.
“Burberry’s sales have been boosted by the resurgence of Chinese tourists in Europe. Nevertheless, our experts caution that this lift is likely to be short-lived as an uneven economic rebound in China puts the shackles on some travellers,” said Zainab Atiyyah, Analyst at Third Bridge.
Over the past year, luxury stocks have been somewhat of a safe haven in the consumer-facing retail sector. However, the possibility of a broad downturn and flat guidance spurred a bout of selling of Burberry shares on Thursday.
“Having a wealthy clientele is an advantage in the current economic climate as Burberry’s typical customer is going to be less affected by the rising cost of living than someone whose pay packet is almost entirely gobbled up by bills and everyday essentials,” said Russ Mould, investment director at AJ Bell.
“However, that doesn’t mean Burberry is immune from an economic downturn. We’ve seen in recent months signs of cracks in the luxury goods market. Diamond prices have been falling, so too the value of second-hand luxury watches as the market is flooded with supply.
“The fact Burberry hasn’t lifted its guidance for the new financial year after reporting such a strong set of results, and reference to it being ‘mindful’ of the macroeconomic and geopolitical environment, appear to have been the trigger for some investors to take profits in the stock, with the share price falling more than 6% on the latest news.”
Burberry shares were down 6.7% at the time of writing on Thursday but are a solid 48% higher over the past year.