Burberry weighs on luxury sector as CEO exits amid profit warning and dividend suspension

By Barbara Kollmeyer

Swatch also reports weak sales, calling the China market difficult

Burberry cast a cloud over the luxury sector on Monday after the high-end U.K. retailer announced a profit warning and a dividend halt and said its chief executive officer was being replaced.

The company's stock was down 18%, making it the worst performer in Europe, and was headed in the direction of its worst-ever one-day percentage drop, which was a 20% fall in September 2022. Burberry's year-to-date losses now stand at 48%.

The maker of the iconic trench coat (UK:BRBY) described a "disappointing" fiscal first quarter of 2025 in an update. For the 13 weeks ending in June, Burberry said retail revenue dropped 22% to GBP458 million ($593 million) on an annual basis, with same-store sales down 21% from an 18% year-ago rise. Currencies were a 2% headwind, it said.

Gerry Murphy, the chair of Burberry, said that the company was finding the luxury market "more challenging than expected" as weakness coming into full-year 2025 deepened. He said that "if the current trend persists through our [second quarter], we expect to report an operating loss for our first half."

Slower luxury demand was an issue for all regions, with same-store sales declines led by a 23% drop in Asia Pacific, with mainland China down 21%, South Asia Pacific tumbling 38% and South Korea off 26%, although Japan gained 6%. The Americas saw a 23% drop, while the Europe, Middle East, India and Africa region fell 16%.

The warning comes on the heels of a profit decline for fiscal 2024, which the company reported in May.

Alongside the suspension of its fiscal 2025 dividend, Burberry separately said Jonathan Akeroyd, its chief executive officer and executive director, would be replaced by Joshua Schulman with "immediate effect." Burberry flagged "extensive" luxury experience from Schulman, an American, who served as CEO of Michael Kors from 2021 to 2022 and as Coach's brand president from 2017 to 2020.

Murphy said the company would embark on cost savings to boost second-half results and would "strengthen our competitive position and underpin long-term growth." For 2025, Burberry expects wholesale revenue to decline 25% in the first half and 30% for the full year, with capital expenditure of around GBP150 million and a currency headwind of GBP55 million to revenue and GBP20 million to operating profit.

"We would expect investors to move to a 'show me' mode and wait on the sidelines to see where the new CEO will want to take the business and what the key strategy planks will be. Against a weak market, it is not surprising to see brands in transition - like Burberry - struggle," said a team of analysts at Bernstein led by Luca Solca.

Solca and his team said Burberry's "attempted upmarketrepositioning had failed," alongside a relaunch under creative director Daniel Lee, given that the company's luxury goods have been heavily discounted.

"This is a kitchen sink exercise par excellence, and underscores the enormity of the challenge facing Burberry in a world where Chinese sales can no longer be taken for granted," Chris Beauchamp, chief market analyst at IG, wrote in a note to clients.

Luxury-goods companies have continued to struggle against difficulties in one of their biggest markets. Burberry's weak update coincided with fresh data from China showing the economy expanded at a slower-than-forecast 4.7% annual rate in the last quarter, well below first-quarter growth of 5.3%.

Another blow to the luxury sector on Monday came from Swatch (CH:UHR), which reported a first-half sales drop for its high-end watches due to weak China demand, as the company said it expects that market to remain tough until the end of 2024. Shares of Swatch slid 10%, bringing its year-to-date losses to 25%.

Other names under pressure on Monday included Kering (FR:KER), down over 5%; Richemont (CH:CFR), off 4%; and LVMH Moet Hennessy Louis Vuitton (FR:MC), down 2.7%.

-Barbara Kollmeyer

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07-15-24 1023ET

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