Burberry hit by luxury slowdown as China sales drop in Q2

(Sharecast News) - British high-end fashion giant Burberry has warned that the slowdown in luxury demand is having an impact on current trading and could affect full-year sales, as it reported a huge deceleration in sales growth in the first half. The company said, while it is confident in its medium and long-term targets, it hasn't been immune to the wider challenging market conditions that have already hit a number of major players, including Kering, Hermès and LVMH.

"If the weaker demand continues, we are unlikely to achieve our previously stated revenue guidance for FY24," the company said in its interim results. Current guidance points to low double-digit growth in full-year revenues for the year ending March 2024.

"In this context, adjusted operating profit would be towards the lower end of the current consensus range (£552m-£668m)."

The outlook came as the company delivered a 4% increase in first-half sales to £1.40bn, with growth limited by FX headwinds. At constant currencies, growth would have been 7%.

In retail, comparable store sales during the half were up 10%, but growth stood at just 1% in the second quarter, compared with 18% in the first.

The Asia Pacific region grew first-half like-for-like sales by 18%, with 36% growth in the first quarter slowing to just 2% in the second, with the company blaming a tough comparative last year. Mainland China sales fell by 8% in the second quarter as spending shifted offshore, the company said.

The Americas region also struggled, with comparable store sales down 10% in the second quarter due to weak demand.

Meanwhile, wholesale revenues were down 8% due to a weak performance in the Americas, and the company is now guiding to a mid-single digit percentage decline for the full year.

On the bottom line, adjusted operating profits were down 6% year-on-year at £223m, as the adjusted operating margin dropped by 180 basis points to 15.9%.

Despite the weaker results, Burberry still raised its interim dividend by 11% to 18.3p.

"While the macroeconomic environment has become more challenging recently, we are confident in our strategy to realise our potential as the modern British luxury brand, and we remain committed to achieving our medium and long-term targets," said chief executive Jonathan Akeroyd.