In a difficult market, Burberry has become one of the retailers who can be relied upon to buck the trend and deliver growth.
Having seemed immune to macroeconomic turbulence, the news today of a sales slowdown in recent weeks comes as a surprise.
Retail sales growth grew 6% in the 10 weeks to 8 September 2012. New space contributed 6% while comparable store sales were unchanged year-on-year, with a deceleration in recent weeks, contributing to a drop in expectations for full year pre-tax profit from around £440m to £407m.
The slowdown is understood to be affecting all regions and occuring throughout the luxury sector, and signals a sudden drop in Chinese consumer spending in particular.
Angus Campbell, head of market analysis at London Capital Group says: “The retailer has gorged itself on a booming middle class in the Far East but this news today is yet another indication that Chinese consumption, upon which the company is so heavily reliant, is stalling.”
Bethany Hocking at Investec says their understanding is that the slowdown has been “reasonably broad-based regionally”. While the long term strategy of the company will remain unchanged, the retailer is expected to batten down the hatches on all but essential costs – the focus internally will be to protect profitability.
Burberry’s slowdown was limited to recent weeks, with its update covering trade right up until September 8th. Seymour Pierce analyst Kate Calvert says the slowdown in consumer spending is likely to have affected other luxury players, whose recent second quarter updates didn’t cover such a recent period.
It remains to be seen if this is a blip or the start of a longer term trend, but chief executive Angela Ahrendts and her team will no doubt be watching the Chinese government’s efforts to boosting spending closely. The profit warning is not disastrous and at the moment, Burberry is still seen as a long term growth prospect - despite the share price tumble which greeted the news today.
The increasing wealth of the middle class in China and its ilk has buoyed the luxury sector for years while other retail sectors struggled. Burberry’s slip up is evidence that not even these consumers, or their super-rich counterparts in other countries, are immune to the effects of recession.