Burberry warning rattles shares

Shares in Burberry tumbled today as the luxury goods maker warned of tough trading, particularly in the United States.

The global upmarket brand – famous for its brown, red and black check products - said it had seen a “very challenging” trading environment since the beginning of the second half of the financial year in September, as Burberry fell victim to the same slowdown experienced by other luxury goods companies.

It said while sales in Europe, Asia and emerging markets continued to be comparably strong, the United States had become a “more challenging” market, with a higher proportion of its retail sales going through lower-priced outlets.

“While profit for the financial year is dependent on peak season trading, if these initial trends were to continue for the rest of the year, adjusted profit before tax would be in the mid to lower half of the current range of market expectations for this financial year,” Burberry said.

It said total retail sales for the start of the second half of the year were ahead of last year, but comparable store sales were down by “a mid single-digit percentage”.

It also expects total wholesale underlying revenues to be down by “a mid to high single-digit percentage”.

Analysts Citi said the statement by Burberry that earnings would be reduced to the mid to lower half of current consensus forecasts indicated a drop from the present £160 million to £215 million range, to between £160 and £188 million.

They said Burberry’s announcement of a “more difficult” trading environment came “as no surprise”.

Burberry’s shares suffered a double-digit percentage fall today despite the retailer reporting pre-tax profits for the first six months to September 30 of £97 million, compared to £95.8 million for the same period last year.

Underlying revenues were also up in the period to £539.1 million from £449.1 million, a rise of 13%, with sales of non-apparel items like shoes and luxury handbags, particularly strong.

Chief executive Angela Ahrendts, said: “The fundamentals of Burberry remain strong, despite the current very challenging environment.”

She said the company had reached the final phase of supply chain and IT investments, allowing it to “drive significant efficiencies”.

Ms Ahrendts also announced two joint ventures – the first in the Middle East and the second for non-apparel in Japan.

Burberry Middle East, with The Jashanmal Group, will manage all Burberry retail and wholesale distribution in the United Arab Emirates markets of Dubai and Abu Dhabi, as well as Qatar, Oman and Kuwait.

Burberry said comparable store sales in these countries had increased by over 40% in the year-to-date. There are currently eight stores in the joint venture, with a further four planned for the current financial year.