Burberry warns of profit drop Trenchcoats Overlooked

British brand impacted by sustained luxury demand decline amid cost-of-living crisis.

Burberry cautioned that yearly profits would significantly fall below initial projections, as consumers excluded its pricey trenchcoats, bags, and scarves from their Christmas shopping lists.

The high-end British brand noted that trade had been impacted by an ongoing deceleration in luxury demand, prompted by increases in the global cost of living and interest rates.

Burberry anticipates operating profits ranging from £410m to £460m for the fiscal year ending in March, a significant adjustment from its earlier projection at the lower end of £552m to £668m. The company’s share price initially dropped by 14% during early trading, later partially recovering to a 6% decline. This performance ranked Burberry as the leading decliner on the FTSE 100 on Friday. Over the past year, the shares have experienced an almost 45% decrease.

Amid the cost of living crisis, consumers deemed the luxury brand’s premium products, such as the iconic heritage trenchcoat priced at £1,890 and the signature scarf at £420, too costly for tightened household budgets, leading to significant cutbacks in spending.

“We are actively progressing with the implementation of our new contemporary British luxury creative concept for Burberry, introduced in our stores since early autumn,” stated Jonathan Akeroyd, Burberry’s Chief Executive. “We are in the initial phases of executing this strategy, and it has presented additional challenges in light of the diminishing demand for luxury items. Our key December trading period saw a further slowdown in performance.”

Year on year, revenues dropped by 7% to £706m in the 13 weeks ending on December 30. Burberry reported a 4% overall decline in sales at comparable stores, those open for more than a year, during the period. Specifically, Europe experienced a 5% decrease, the US saw a 15% drop, and Asia Pacific witnessed a 3% increase.

“The evident cracks in luxury demand are noteworthy,” remarked Sophie Lund-Yates, the lead equity analyst at Hargreaves Lansdown. “The demographic of aspirational shoppers is among those scaling back, and Burberry is more susceptible to this category than super-high-end luxury. Additionally, the business model lacks the product diversification seen in others within the industry.

Competitors like the French luxury labels LVMH and Kering have likewise documented reduced demand for upscale products in vital markets such as the US, Europe, and China, as the post-pandemic shopping surge diminishes.

In the previous month, National Debtline reported that approximately 6.5 million individuals would face challenges in adequately heating their homes during the festive season. Furthermore, 2.7 million people had to make the difficult choice between purchasing food or gifts, underscoring the significant repercussions of the ongoing cost-of-living crisis on household finances.

Over 14 million consumers intended to reduce the number of gifts they planned to purchase, with 6 million determining that they could only afford to buy presents for children this year.

Burberry had been experiencing a notable revitalization in its financial prospects, reporting profits of £634m for the fiscal year ending in March 2023, a substantial increase from the £523m recorded in 2022.