Burberry Leads Luxury Stocks Lower as Slowing Sales Fuel Concern

Burberry Leads Luxury Stocks Lower as Slowing Sales Fuel Concern
A Burberry store in London. Photographer: Simon Dawson/Bloomberg

Burberry Group Plc led luxury-goods stocks lower after reporting sales that missed analysts’ estimates for a second straight quarter, fueling concern that Europe’s debt crisis and slowing growth in China are finally taking a toll on demand for high-end goods.

Burberry, the U.K.’s largest luxury company, fell as much as 6.9 percent in London trading, sliding to the lowest price since Jan. 3. Cie. Financiere Richemont SA, the maker of Cartier jewelry, dropped as much as 2.1 percent, while LVMH Moet Hennessy Louis Vuitton SA slid as much as 3 percent.

“There is a slowdown in the broader global economy and as luxury is cyclical, this slowdown is starting to appear in the luxury-goods quarterly reports,” Luca Solca, global head of European equities at CA Cheuvreux, said today in an interview with Bloomberg Television.

Sales at London-based Burberry increased 11 percent to 408 million pounds ($634 million), trailing the 417.8 million-pound average of six estimates compiled by Bloomberg. Excluding currency shifts, underlying revenue in the three months ended June 30 also rose 11 percent, slowing from growth of 15 percent and 21 percent in the previous two quarters.

Europe’s sovereign-debt crisis and decelerating economic growth in China have so far failed to reduce demand for high-end goods. Prada SpA and LVMH both reported higher revenue in their first quarters, with the latter saying in April that sales growth was accelerating, led by spending by consumers from emerging markets.

Slowdown Caution

“The slowdown at Burberry highlights caution for peers,” Louise Singlehurst, an analyst at Morgan Stanley with an equal-weight recommendation on the stock, wrote in a note today.

Burberry fell 5.8 percent to 1,210 pence as of 12:26 p.m. in London trading. PPR SA, owner of the Gucci brand, declined as much as 3.4 percent in Paris.

Burberry, known for its plaid-lined trenchcoats, can’t predict whether market conditions will get tougher, Chief Financial Officer Stacey Cartwright said today on a call with reporters.

“We focus on what we can control and our message to our teams is very much to ensure that we continue to outperform irrespective of” political change in the U.S., the Middle East and China or “uncertainties” in Europe, Cartwright said. Burberry hasn’t changed its full-year forecast for pretax profit of about 440 million pounds, she said.

Licensing Dip

The quarter was affected by the ending of some license agreements, Burberry said. Underlying licensing revenue fell 5 percent, though is still expected to be “broadly unchanged” for the year, it said. Sales growth was driven by Burberry’s own stores, which now account for about 70 percent of revenue.

So-called retail-wholesale sales rose 18 percent, excluding currency shifts, in the Asia-Pacific region and 16 percent in Europe during the quarter. Growth was 2 percent in the Americas, which was affected by the planned end of some wholesale accounts, and 9 percent in the rest of the world, Burberry said.

Underlying retail sales increased 14 percent, or 6 percent at stores open at least a year, according to Burberry, which opened six mainline stores and closed two in the period. The company said it plans to increase average retail selling space by 12 percent to 14 percent in the year ending March 31, shifting from smaller to larger format stores.

Italy and Korea remained weaker markets, while sales growth at so-called mainline stores in the U.K., France, Germany and the Greater China region was strong in the period, Burberry said. Like-for-like sales in mainland China climbed by a mid-teen percentage, led by Beijing, Cartwright said.

Chinese Opportunity

Burberry continues to see “an enormous amount of opportunity” in China and may increase its store numbers there to as many as 100 from 63 now, Cartwright said.

Men’s tailoring and non-apparel performed strongly in Burberry’s largest stores during the first quarter, as did new merchandizing strategies in soft accessories, the company said. Burberry raised average selling prices at its biggest stores in the period, without saying by how much.

Wholesale revenue climbed by an underlying 9 percent, Burberry said, adding that some deliveries, mainly in Europe, were brought forward from the second quarter. The performance is consistent with the company’s guidance of mid-single-digit percentage growth in underlying wholesale revenue for the six months ending Sept. 30, Burberry said.

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