On Thursday, Burberry revealed in its fiscal second-quarter earnings report that its comparable store sales growth dropped significantly, from 18% in the quarter prior to merely 1%, as demand in China subsided. Across the globe, companies in the luxury goods sector are being constrained by weakening demand, brought upon by economic instability and steeper inflation which is resulting in retrained spending on luxury goods.
Shares of Burberry dropped 9% Thursday following the British luxury fashion company's warning that operating profit would hit the bottom of estimates, and that it may miss its yearly revenue target of low double-digit growth.The second quarter showed only 1% comparable store sales growth, down from the prior quarter's 18%, as demand in China weakened.Half-year operating profit clocked in at £223 million ($276.64 million), a 15% drop year-on-year.In spite of this, CEO Jonathan Akeroyd noted that progress is being made on strategic goals and touted the Winter 23 collection, which was the first designed by Daniel Lee."Although external conditions have grown tougher, we are confident in our strategy and remain committed to our medium and long-term objectives," Akeroyd said in a statement.
Weakening demand for expensive items is having an effect on businesses from all over the world, as economic doubts and higher costs of living have caused people to be less likely to buy luxury merchandise. Last month, the premier luxury house, LVMH, also announced a decrease in quarterly sales, and Richemont, the holder of the Cartier brand, made clear that growth would be weaker. Burberry, in its fiscal year report, stated that "if the lower demand continues, there's a chance that we will not meet our aims for FY24*," continuing by asserting that operating profits "will be more likely to be at the lower end of the range of estimates (£552m-£668m)*." Aside from the international problems the industry is facing, Burberry has been vocal about the special difficulties it's currently grappling with in Britain as a result of the government taking away tax-exempt shopping for foreign buyers. Many UK retailers, Burberry among them, have asked the Prime Minister Rishi Sunak and Financial Secretary Jeremy Hunt to reconsider the removal of what critics have named the "tourism tax."
The Americas posed a challenge for Burberry this quarter, with comparable store sales decreasing by 10%. Russ Mould, investment director at stockbroker AJ Bell, noted that resolving this is a priority for CEO Jonathan Akeroyd. He added that Burberry shareholders will take comfort in seeing other luxury competitors struggling, indicating that the company is not experiencing difficulties of its own creating. The only available option is to maintain and invest in the brand and wait for an improvement in the market.
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