LONDON — Is luxury headed into a hurricane or a rain shower?
Industry observers were speculating about what lays ahead for the industry, as Burberry warned on Tuesday that adjusted pre-tax profits for the full year would be “around the lower end” of market expectations.
Burberry’s stock price plummeted nearly 21 percent to 10.88 pounds, or $17.41, at the day’s close following an unscheduled announcement that second-quarter retail sales so far were up 6 percent — due entirely to new store openings.
It was the second time in less than three months that Burberry has reported a slowdown in growth. Sales in the three months to June 30 climbed 11.2 percent, compared with 16.1 percent increase in the previous quarter.
The news dragged down other fashion and luxury stocks, including Compagnie Financière Richemont, which sank 5.1 percent to 60.85 Swiss francs, or $64.34; Ferragamo, 5.1 percent to 17.19 euros, or $21.98; LVMH Moët Hennessy Louis Vuitton, 3.4 percent to 127.80 euros, or $163.40; Mulberry Group, 4.2 percent to 13.01 pounds or $20.81, and PPR, 2.1 percent to 125.25 euros, or $161.14. All dollar figures have been calculated at current exchange rates.
Luxury stocks were also in retreat in the U.S. Among the decliners were Tumi Holdings Inc., down 3.2 percent to $24.10; Ralph Lauren Corp., 2.6 percent to $156.22; Saks Inc., 2.1 percent to $11.20, and Coach Inc., 1.8 percent to $61.48.
“We’re not in 2008, and Burberry hasn’t hit a brick wall — what we’re seeing is the continuation of a slowdown,” said Kate Calvert, a retail analyst at Seymour Pierce in London. “The question is, how much further will it slow? Right now we have no visibility, we don’t know how prolonged it will be.”
Calvert said one cause for concern is that the Burberry figures are “bang up to date” compared with the sunnier second-quarter figures posted by Burberry’s competitors such as LVMH, PPR and Hermès over the summer. She thinks there may be more bad news ahead for the sector. “I’m not feeling like this is a brand-specific thing,” she said.
Citing “a more challenging external environment” for the sector, Burberry said same-store sales in the first 10 weeks to Sept. 8 were flat year-on-year, with a “deceleration” in recent weeks. Burberry reported no major regional bias, with the slowdown coming from all areas including Europe, Asia and the Americas.
Chief executive officer Angela Ahrendts said the growth had come against historically high comparatives. “Given this background, we are tightly managing discretionary costs and taking appropriate actions to protect short-term profitability, while continuing to execute on our proven five key strategies,” she added.
A source close to Burberry said none of the actions would be “brand damaging, nothing the consumer would notice. There is no change on strategy, and no diversion from the big plans.”
Instead, Burberry management has frozen head count, travel, cut marketing spend and deferred IT projects. “They’re also using the merchandise to work the stores harder,” the source said.
Later this week, Burberry is set to open officially its largest store yet, a 44,000-square-foot space on London’s Regent Street that showcases the brand’s full merchandise offer.
Analysts at Investec in London were cautious about making too many predictions about Burberry:
“We remain long-term fans of Burberry’s strategy and business model, but for now, given the lack of visibility on sales momentum, we raise our risk discount to 15 percent…and move [our recommendation] to ‘hold.’ We, and the market, will have to wait for more information on Oct. 11,” said Investec in a report on Tuesday.
Burberry will issue a first-half trading update for the six months to Sept. 30 on Oct. 11, and interim results on Nov. 7. The markets were expecting Burberry’s adjusted pretax profits to range from 407 million pounds, or $651.2 million, to 455 million pounds, or $728 million.
The Burberry source said the company is sticking with its first-half guidance of midsingle-digit underlying wholesale growth.
Burberry isn’t the only luxury company to witness a slowdown: Last week, Richemont reported a 23 percent uptick in the five months to Aug. 31, boosted partly by the weakening euro. At constant rates, growth would have been 13 percent.
However, Johann Rupert, executive chairman and group ceo, was cautious about the figures, noting that the 13 percent rate “includes a declining month-on-month rate of growth,” and talked about “moderation in sales growth since May.”
In July, while PPR and LVMH reported strong second-quarter results, there was an undercurrent of slowing growth, in particular among many divisions at LVMH and at Gucci.
Growth at PPR’s luxury division was broadly flat on a comparable basis due chiefly to a slowdown at Gucci, where growth fell to 10 percent from 11.6 percent in the previous three-month period. PPR said the slowdown was due to a “rationalization” of the brand’s wholesale distribution channels, especially those in Italy.
Hermès is the only major luxury player that hasn’t experienced a whiff of difficulty. Last week, the French brand reported that sales rose 28 percent during the first six months. It upped its target for 2012 sales growth to 12 percent from 10 percent previously.
Thomas Mesmin, a luxury analyst at Credit Agricole Cheuvreux, said he wasn’t surprised by Burberry’s announcement on Tuesday. He said the industry as a whole has been too focused on the top line. “Between 2007 and 2012, many brands moved very fast from wholesale to retail models, incurring more fixed costs, which put profits at risk,” he said.
“I don’t think Burberry’s retail model is appropriate — I think the stores are too big,” he added. “This is a high-multiple sector, so every time you have concerns regarding top-line growth, the sector comes under pressure.”
Burberry’s ongoing strategy has been to shift to retail and to focus on large-format stores in flagship markets that benefit from a high net worth local population and the traveling luxury consumer. In the 2011-12 fiscal year, stores in the flagship markets generated about 60 percent of mainline revenue.
One analyst, who spoke on condition of anonymity, said Burberry was clearly looking to manage market expectations with Tuesday’s announcement. “It’s no secret that things are getting tougher for the luxury industry, but it’s difficult to know whether Burberry’s slowdown is brand specific or industry specific,” he said.
“My personal philosophy to beauty is paying attention to oneself. I love to be outdoors, lots of fresh air, trying to take care of yourself as best you can. I always notice that comes through,” says Felicity Jones, the global face of @shiseido-owned @cledepeaubeauteus, which launches today. Head to WWD.com to read more about the actress’ love for beauty and how she prepared for her new role in “The Basis of Sex,” playing the young Ruth Bader Ginsburg. #wwdbeauty (📷: @dandoperalski)
For men’s fall 2018, @giuseppezanotti drew on elements from streetwear, sport, biker, combat and rock ‘n’ roll. Pictured here are a pair of shoes from the collection, featuring zippers, rhinestones, and silver hardware. Head to WWD.com to see a roundup of the accessories from Milan’s men’s fall 2018 shows. #wwdfashion (📷: Andrea Delb)
To celebrate the 25th anniversary of @ralphlauren’s snowboarding collection, the brand is mining its archives. The iconic brand is reintroducing vintage styles and dropping new designs for a color capsule that will be available in Ralph Lauren stores and @openingceremony on January 25. The capsule will consist of 10 pieces, including the Snow Beach Pullover, pictured here, which is a collector’s item that rapper Raekwon wore in Wu-Tang Clan’s “Can It Be All So Simple” video. #wwdfashion (📷: Tom Gould)
For @rochasofficial’s pre-fall 2018 collection, creative director Alessandro Dell’Acqua channeled the sophisticated and intriguing Catherine Denevue in the film “Belle de Jour.” Polished collarless coats, midi skirts, suits and ’60s graphic motifs were all featured in the collection, adding a sense of discreet luxury. See the rest of the photos on WWD.com #wwdfashion
“We tried to produce clothing of that couture quality, but the most daunting part was that we only had a matter of days [to do it],” said costume designer Lou Eyrich, who recreated Gianni Versace’s iconic looks for @americancrimestoryfx. Eyrich searched online retailers and vintage shops for original pieces from the design house and for @penelopecruzoficial, who plays Donatella Versace. Head to WWD.com to read how she created the Versace world. #wwdfashion
Only three months after her stellar debut catwalk season, @kaiagerber has inked her first big design collaboration –– with @karllagerfeld. The collection blends Lagerfeld’s Parisian chic aesthetic and the model’s signature West Coast casual style via RTW, accessories, footwear and more. The #KarlLagerfeldxKaia collection will launch in September with a series of events. Get all the details on WWD.com. #wwdnews #wwdfashion
Harrods plans to remove the famous statue of Princess Diana and Dodi Al Fayed from the bottom of the Egyptian escalators and hand it back to Mohamed Al-Fayed. “We are very proud to have played our role in celebrating the lives of Diana, Princess of Wales and Dodi Al Fayed at Harrods and to have welcomed people from around the world to visit the memorial for the past 20 years,” said Michael Ward, Harrods managing director. “With the announcement of the new official memorial statue to Diana, Princess of Wales at Kensington Palace, we feel that the time is right to return this memorial to Mr. Al Fayed and for the public to be invited to pay their respects at the palace.” More on the news, with reporting by @loreleimarfil, at WWD.com. #wwdnews