Burberry’s Financial Forecast Gloom as Luxury Market Tightens

The luxury fashion landscape shows signs of distress, with Burberry’s recent financial figures painting a stark picture. The esteemed British fashion house saw its shares tumble by 9% following an announcement that it may not meet its full-year operating profit and revenue projections due to a global downturn in luxury spending. This worrying trend is mirrored across the sector, with giants like LVMH and Richemont feeling the pinch.

At the heart of Burberry’s challenge is a marked deceleration in sales growth, plummeting from a robust 18% to a mere 1% in the last quarter, primarily affected by a drop in Chinese market momentum. Despite this, CEO Jonathan Akeroyd remains optimistic, citing the successful launch of the Winter ’23 collection and the brand’s ongoing strategic initiatives as signs of “good progress.” Akeroyd’s statement is balanced, acknowledging the harsh economic climate and affirming its commitment to its long-term vision.

However, the pressure is mounting. With a global reduction in luxury goods purchases due to economic uncertainty and inflation, Burberry and its peers are navigating a sea of challenges. The brand also points to local issues, such as the UK’s removal of VAT-free shopping for international visitors, which has been a significant blow to the industry. Burberry and other British retailers are pushing back against this “tourism tax,” urging government officials to reconsider.

Burberry faces specific difficulties in the Americas, with a 10% decline in comparable store sales this quarter alone. Investment director Russ Mould from AJ Bell highlights this as a critical area for Akeroyd to address. While there is solace in the shared struggle across luxury brands, the focus for Burberry remains on brand protection and awaiting a more favourable economic landscape.

Burberry’s predicament underscores a broader industry trend of slowing luxury spending. While the company steers through these turbulent times with a clear strategy and a focus on its British luxury identity, the path ahead is uncertain. Yet, with a history of resilience and adaptability, Burberry may navigate these challenges and emerge with its brand prestige intact.