Burberry’s shares are not in fashion this morning after the luxury British brand downgraded profit expectations to the bottom of analysts’ expectations.
Shares fell 6 per cent to £12.63 after the retailer warned of a “challenging demand environment”.
Burberry’s ‘Made in Britain’ tagline has struggled in Hong Kong, where retail revenues fell 20 per cent. The market accounts for 10 per cent of its non-wholesale business, and has upended several luxury retailers.
Analysts at RBC Capital Markets pointed out that the downgrade from the company comes despite a foreign exchange benefit of £60m.
Underlying cost inflation pressures clearly persist, and in a challenged revenue growth environment we expect the company to present further cost cutting initiatives at the Preliminary results in May.
We think the magnitude of cost savings may be limited given all cost cutting implemented last fiscal year and our belief that management will ring fence marketing investment and brand elevation investment in the US and Japan.