Burberry, the British luxury fashion brand, has issued a profit warning due to ongoing challenges in the American market. In a recent trading update, the company reported a decrease in retail revenue for the 13-week period ending on December 30th. Sales fell from £756 million to £706 million compared to the same period the previous year. However, when adjusted for currency fluctuations, the decline was only 2%.

The main issue during this quarter was the decline in comparable store sales in the Americas, which dropped by a significant 15%. The EMEIA region (Europe, Middle East, India, and Africa) also experienced a decline, albeit at a smaller rate of 5%. The only positive result came from the Asia Pacific region, which saw a 3% rise in sales. However, this growth was driven by specific countries within the region, including Mainland China, Japan, and South Asia Pacific.

Despite the challenging market conditions, CEO Jonathan Akeroyd remains optimistic about the future of the company. However, he withdrew the firm’s profit guidance and acknowledged the difficulties in transitioning to a new modern British luxury creative expression for Burberry. Akeroyd stated that the recent slowdown in sales during the crucial December trading period has led to a revision of their full-year results, lowering them below previous guidance. Nevertheless, he reiterated the company’s commitment to generating £4 billion in revenue and expressed confidence in their strategy to realize Burberry’s potential.

The profit downgrade is significant, with Burberry now expecting adjusted operating profit for the financial year ending on March 30th to be in the range of £410 million to £460 million. Additionally, the company anticipates a currency headwind of around £120 million impacting revenue and a further £60 million denting adjusted operating profit due to exchange rate fluctuations.

This recent update follows a previous announcement in November where Burberry stated that annual adjusted operating profit could be at the lower end of the consensus range. However, the new forecast falls well below that range, indicating a more challenging situation.

Burberry’s struggles in the Americas showcase the difficulties faced by luxury brands in the region as consumer demand slows down. It also highlights the significance of expanding in the growing Asian market, especially in China and Japan, where positive sales performance has been observed.

Moving forward, Burberry must address the underlying issues affecting its sales in the Americas and EMEIA regions while capitalizing on growth opportunities in Asia Pacific. The company’s ability to execute its new creative expression and drive demand will be crucial in determining its future success, given the highly competitive nature of the luxury fashion industry.

Sources:
Burberry Official Website
Financial Times