Fashion group Burberry has warned of a global slowdown in demand for luxury goods as inflation starts to hit wealthy customers, and said it may not meet its full-year profit guidance.
Shares in the group slumped as much as 11% on Thursday morning after it revealed that the slowdown in luxury demand is affecting current trading and said, if it continues, it will mean it is unlikely to achieve previous expectations for low double-digit full-year revenue growth.
The firm added that, if sales do not pick up, underlying earnings for 2023-24 will be towards the lower end of the market’s expected range of £552 million to £668 million.
It came after Burberry reported pre-tax profit falling to £219 million for the six months to September 30, down from £251 million a year ago, but underlying earnings came in better than expected at £223 million, despite a 6% fall.
Chief executive Jonathan Akeroyd said: “While the macroeconomic environment has become more challenging recently, we are confident in our strategy to realise our potential as the modern British luxury brand, and we remain committed to achieving our medium and long-term targets.”
The luxury industry is feeling the pinch as high inflation and rising interest rates squeeze consumer spending.
Burberry reported a marked slowdown in comparable store sales growth in its second quarter, at 1% compared with 18% in the previous three months.
First-quarter trading had been boosted by surging trading in China, Burberry’s largest market, as shoppers returned to stores after Covid lockdown measures the previous year.
But this faded away in the second quarter and the global pullback in spending hit overall trading.
Burberry said early signs of demand for its winter 2023 collection – the group’s first by designer Daniel Lee – were “encouraging”, though investors spooked by the caution over its ability to meet annual earnings guidance.
Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, said: “The shine is dimming on the luxury sector as even higher-end consumers tighten their belts.
“Heralded as a more resilient corner of the economy, suggestions of missing targets and lower-end profits aren’t what investors have come to expect.”
“The work the group’s done to become a more premium luxury house is to be commended and will improve strength in the long-term, but there’s no getting away from the fact that particularly aspirational, younger shoppers are thinking twice before swiping their cards,” she added.
