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British luxury fashion house Burberry has reported a significant downturn in its sales growth, with the latest figures revealing a sharp decline from an 18% increase in comparable store sales in the first quarter to a mere 1% in the second quarter. This slowdown resulted in a half-year growth of just 10%, falling short of the company’s expectations. The challenging macroeconomic climate, marked by rising global inflation and economic uncertainty, is cited as a key factor affecting luxury spending habits.
Burberry’s half-year financial results, released today, show a modest revenue increase of 4% to £1.4 billion (GBP1 = USD1.2377). However, this was overshadowed by a substantial 15% drop in operating profit, which now stands at £223 million. The company’s CEO, Jonathan Akeroyd, has partly attributed these difficulties to the so-called tourist tax, suggesting that post-Brexit changes are causing luxury shoppers to bypass London for tax-free destinations like Paris and Milan.
The interim results also highlight the following key points:
- Asia-Pacific region reported an 18% increase in like-for-like sales for the first half of the year, but this was dampened by a slowdown from 36% growth in the first quarter to 2% in the second quarter.
- Mainland China specifically saw an 8% decline in second-quarter sales as spending shifted abroad.
- In the Americas, there was a 10% fall in second-quarter comparable store sales.
- Wholesale revenues decreased by 8%, with forecasts suggesting a mid-single-digit percentage drop for the full year.
The adjusted operating margin has contracted to 15.9%, with adjusted operating profits declining by 6% year-over-year. Despite these challenges, Burberry has raised its interim dividend by 11% to 18.3 pence per share.
Akeroyd remains optimistic about Burberry’s strategic direction as a modern British luxury brand and its medium and long-term objectives. However, he cautioned that if current adverse market conditions persist throughout the financial year, it may be difficult for the company to achieve its low double-digit growth forecast, potentially impacting profits further. This situation is not unique to Burberry; other luxury conglomerates such as LVMH, Kering (EPA:), and Richemont are also grappling with similar slowdowns in their quarterly sales amidst a less favorable global economic environment.
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