"Burberry Stumbles Amid China Blow... Stock Plummets 11%"

Operating Profit Down 5% in First Half
Sales Growth Rate Slows from 18% to 1%

Due to decreased demand in China and the United States, the largest luxury consumption markets, the sales growth of British luxury company Burberry has significantly slowed down.

On the 16th (local time), Burberry announced through its earnings report that its operating profit for the first half of this year (April to September) was ?223 million (approximately 358.7 billion KRW), a 15% decrease compared to the same period last year (?263 million). The operating profit margin dropped by 3.6 percentage points from 19.5% to 15.9%.

During the same period, the sales growth rate slowed from 18% in the previous quarter to 1%. By region, sales growth rates were 10% in Europe, the Middle East, India, and Africa, and 2% in the Asia-Pacific region, but North America experienced a negative growth of 10%.

The company explained the slowdown in sales growth as "due to the disappearance of growth momentum in China." Russ Mold, Investment Director at AJ Bell, a major UK investment platform, pointed out that the decline in sales in the US was particularly notable, stating, "Burberry posted its worst performance in the North American region," and added, "Achieving a sales rebound in North America will be Burberry's biggest challenge going forward."

This trend is expected to continue for the time being. Burberry stated in its earnings report, "The trend of weakening global luxury demand is intensifying," and "It is expected to be difficult to meet next year's performance targets." Previously, Burberry had set its operating profit target for next year at ?552 million to ?668 million.

Jonathan Akeroyd, Burberry's Chief Executive Officer (CEO), said, "The macroeconomic environment is becoming more challenging," and added that if the current sales decline continues, it will be difficult to achieve this year's and next year's sales targets.

[Image source=AFP Yonhap News]

US economic media CNBC pointed out that due to inflation and recession concerns, consumer spending on luxury goods has decreased, leading to continued poor performance among global luxury companies.

Earlier last month, French luxury company Louis Vuitton Mo?t Hennessy (LVMH) announced that its sales growth rate for the third quarter of this year was 9% compared to the same period last year, which was only half of the previous quarter's 17%. In particular, sales growth in Asia, excluding Japan, dropped from 34% in the previous quarter to 11% in the third quarter.

The company explained the decline in sales growth as a result of reduced spending by luxury consumers due to the ongoing economic downturn in China following the COVID-19 pandemic. Jean-Jacques Guiony, LVMH's Chief Financial Officer (CFO), noted that sales in China during the long "8-day Golden Week" holiday, which includes the Mid-Autumn Festival and National Day, did not rise as expected.

Along with poor earnings, stock prices have also declined. Burberry's stock, listed on the London Stock Exchange, closed down sharply by 11.15% at ?1,550 on the day. Burberry's stock price has fallen nearly 30% since the beginning of the year. LVMH's stock, listed on the Paris Stock Exchange, also dropped nearly 2% on the day. LVMH's stock price is down 21% from its July high of €892.30 this year.