Burberry warns on profit as luxury demand ebbs

By James Davey and Suban Abdulla

LONDON (Reuters) - Britain's Burberry blamed a worsening slowdown in demand for luxury goods for its second downgrade since November, and warned of a tough challenge ahead as it shifts creative direction, in another blow for investors.

Burberry's profit warning, which came after it had previously said it would struggle to meet its revenue forecast, is a setback for CEO Jonathan Akeroyd, who is repositioning the brand as "modern British luxury" under designer Daniel Lee.

The global sector, including French luxury group LVMH which owns Louis Vuitton and Dior, Kering (EPA:PRTP) and privately owned Chanel, is being hit by weaker demand, but for Burberry the timing is particularly tough. Lee's first collection arrived in stores in September, aimed at stoking interest in the brand with better quality, higher priced products, such as the 2,890 pound ($3,582) medium-sized leather "Knight" bag.

Shares in Burberry sank 7.4%, extending losses over the last year to 44%, while LVMH was down 1% and Kering, which is overhauling its star label Gucci, fell 1.4%.

Investors will learn more on the state of the sector with updates from Kering on Feb. 8 and Hermes on Feb. 9.

Burberry's CEO remained confident in its approach.

"We're very excited about the strategy that we have ahead of us and we're focusing on execution but if the macro environment slows down for our sector this brings extra challenges," Akeroyd, CEO since April 2022, told reporters.

"We did see a deceleration in December ... This was really the case with most regions," he said, adding that there was a particularly weak performance in the Americas, where comparable store sales fell 15% in its third quarter to Dec. 30.

"Initially that softness came from a more aspirational customer, it's become a bit broader now," he said.

Burberry expected fourth-quarter comparable store sales to be negative, according to analysts at Barclays, citing a call with the company's management.

LOWER FORECAST

Burberry expects full-year 2023/24 adjusted operating profit in a range of between 410 million pounds ($523 million) and 460 million pounds.

In November, it had said the key profit number would be towards the lower end of analysts' forecasts at the time of 552 million pounds to 668 million pounds.

For luxury brands, conflict in the Middle East has added geopolitical uncertainty to an industry outlook already clouded by inflation, with shoppers in the U.S. and Europe more cautious about spending, and expectations for a strong post-pandemic rebound in China derailed by a property crisis.

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Burberry said retail revenue in the 13 weeks to Dec. 30 was down 7% at 706 million pounds, with comparable store sales 4% lower.

They were up 3% in the Asia Pacific region, which includes mainland China where sales rose by a lower-than-expected 8%, but down 5% in Europe.