Thursday, May 23, 2024

Burberry profits slump by 40% as demand for luxury goods slows

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Burberry’s profits have slumped by 40% in a year amid a wider slowdown in demand for luxury goods that has pushed down sales in Asia and the Americas.

The high-end UK fashion retailer posted a pre-tax profit of £383m for the year up to 30 March in its preliminary results on Wednesday, a 40% drop on the £634m in the previous 12 months. Global sales fell by 8% in the second half of the year.

It said it now expects a challenging first half of next year, with the company promising to balance investment in consumer-facing areas with disciplined cost control.

The latest figures come after the company issued a profit warning in January, predicting operating profits of between £410m and £460m over the year, blaming the cost of living crisis and higher interest rates for the decline. Adjusted operating profit came in at £418m in the results released on Wednesday.

The company’s share price slumped by 3% in early trading, before partly recovering to 1.5% down. Shares are 53% lower than this time last year.

Overall sales for the year were down by 1% compared with the previous 12 months but the second half of the year showed particularly sluggish sales, down 8% year on year. This was largely driven by a significant drop-off in sales in the Americas, where sales fell by 14% in the second half of the year, and by 12% across the whole year.

In Asia and the Pacific sales were up by 3% over the full year but nosedived in the second half of the year by 7%, compared with the previous year. This was driven by China, where sales dropped by 19% for the final quarter of the year.

Last week, Burberry’s fellow British luxury brand Mulberry reported a 4% decline in sales, while blaming a slowdown in luxury spending in the UK and Asia. In March the luxury fashion group Kering issued a profit warning after reporting that demand for its leading brand, Gucci, had dried up in China.

Yanmei Tang, an analyst at Third Bridge, said: “Burberry is among the brands that have been affected by a slowdown observed across the wider luxury industry. High-end customers have become pickier about what they buy.

“Our experts say Burberry is struggling to clearly define and elevate its brand identity, resulting in confusing messaging and poor sales growth. There is too much reliance on a new creative direction rather than making operational changes.”

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Jonathan Akeroyd, Burberry’s chief executive, said: “Executing our plan against a backdrop of slowing luxury demand has been challenging.

“While our full-year financial results underperformed our original expectations, we have made good progress refocusing our brand image, evolving our product and strengthening distribution while delivering operational improvements.

“We remain confident in our strategy to realise Burberry’s potential as the modern British luxury brand and in our ability to successfully navigate this period.”

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