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.
In yet another fashion show shuffle, @elleryland is moving its show in sync with the Paris couture calendar — though the brand is still keeping one foot on the city’s ready-to-wear schedule. Their runway show in January will coincide with the launch of a new strategy: designing two main collections each year instead of four, which will then be released in four drops. “As we all know, the system needs to change. We need to show sooner to give time back to artisans and designers to do what they do best — create,” said founder Kym Ellery. #wwdnews #wwdfashion (📷: @kukukuba)
@maxmara’s classic 101801 coat was the cornerstone of its pre-fall 2018 collection. The design team expanded the traditional double-breasted, kimono-sleeved style into a trapeze coat, lean belted styles and a peacoat and presented them in monochromatic looks – like the camel one pictured here. #wwdfashion #prefall18 (📷: George Chinsee)
The @cfda has shifted the dates of #NYFW, with Men’s showing on February 5 through February 7, and Women’s will directly follow, running from February 8 through 14. The preliminary schedule will be released on the CFDA’s web site in the next few days, but Mark Beckham, VP of marketing for the CFDA, revealed that @rafsimons will be back to close the men’s-specific part of the week with a show on February 7 #wwdfashion (📷: Kelly Taub)
@ferragamo is introducing a new space dedicated to the development of women’s and men’s leather good samples. The laboratory, which is created eco-friendly materials and designed to reduce the environmental impact of the manufacturing processes, will allow the company to expand its accessories offering through traditional artisanal approaches. #wwdfashion (📷: @aitorrosasphoto)
How does a “regular, degular, schmegular” girl from the Bronx, N.Y., become a Grammy-nominated artist with a certified platinum record in less than a year? Call it the @iamcardib come up. The 25-year-old has become a musical sensation, and the fashion world is taking note. “If I could describe her style I would say drama. She’s really into the dramatics,” says Cardi B’s stylist @kollincarter. See how Carter styles her bold and out there looks with the link in bio. #wwdfashion
“There is no formula. There is no guideline. I can watch Ted Talks all day, but there is no one who can advise me on exactly what it is I should be doing,” said @ronniefieg, CEO of @kith, in an interview with WWD’s @ariahughes at the brand’s new SoHo office in Manhattan. Head to WWD.com to see how Fieg went from hanging out in shoe stockrooms at 13 to building his own business. #wwdfashion (📷: @weston.wells)
@fearofgod and @maxfieldla have teamed up on a pop-up installation. The store, located in the gallery space across from Maxfield’s Melrose Ave location, is the site of the brand’s House of God pop-up in which Fear of God founder @jerrylorenzo has created a church-inspired installation. A dozen vintage church pews sit in front of an LED screen playing 90s gospel singers in an effort to re-create an environment akin to a Southern Baptist Church, Lorenzo explained. Read more about the pop-up on WWD.com #wwdfashion (📷: Jennifer Johnson)
Known for his sleek, sophisticated American glamour, Norman Norell is the subject of an upcoming exhibition at @fitnyc. “Norell: Dean of American Fashion,” which runs from February 9 through April 14, will feature approximately 100 ensembles and accessories. His best work is exemplified by the designer’s glittering “mermaid” gowns frosted with thousands of hand-sewn sequins – like the one pictured. (📷: William Helburn) #wwdfashion
For pre-fall 2018, @balmain didn’t let go of the glitz. A crystal embroidered baseball jacket priced at around $40,000 hangs in the “couture” section of the brand’s first men’s pre-collection. Sporting the words “Balmain Army” across the back, the item took around two months to make. “When it was completed, it was like Christmas, it was like, ‘It’s done, it’s exactly what I wanted,’” said Balmain’s creative director @olivier_rousteing during a tour of the collection in a Paris showroom on Monday. #wwdfashion