Burberry profit warning prompts investors to sell off shares

Burberry’s chief executive has been fired and its dividend canceled after the latest of a string of profit warnings.

The shares of the British luxury brand plunged after the announcement that Joshua Schulman had been appointed to replace Jonathan Akeroyd, who failed to achieve his turnaround plan.

A 22 per cent drop in sales, to £458 millions in the first quarter was worse than expected. Burberry also warned that, if the weak sales continued in its second-quarter, it would report a loss of operating income for the first six months and its annual profit would be lower than previous estimates.

Burberry announced that it will suspend its dividend for the full year in order to improve its balance sheet. It confirmed it would also cut 400 office jobs in Britain, as part of its cost-savings plan.

Burberry shares plunged following the gloomy report. At the close, they were down 142 1/2p or 16.1 percent, to 744p. This made Burberry the heaviest dropper on the FTSE 100. The stock price has dropped by over 65 percent in the last year.

Piral Dadhania is an analyst with RBC Capital Markets. He said that the most recent snapshot of trading “was incrementally worse than the already lowered guidance[in January]”, indicating “soft brand momentum”.

Burberry, under Akeroyd’s 57-year-old leadership, sought to capitalize on its “Britishness”, as a distinctive brand feature, and become more upmarket, with the designs of Daniel Lee, 38 years old, the Bradford born creative director, who joined Burberry in 2022. It has, however, struggled to get shoppers to purchase its more expensive products due to a general decline in the demand for luxury items.

Gerry Murphy, Burberry chairman at the age of 68, acknowledged that, “with hindsight we may have gone a little too far, too quickly, with the transition to a more creative approach, during a period when customers were feeling more challenged and more conservative”. He dismissed the notion that Burberry’s strategic direction was “incoherent”, saying that it has been “quite coherent for quite some time”.

Under Schulman’s leadership, the fashion brand stated that it would be focusing on “more timeless, classic attributes” that Burberry was known for. This includes its trench coats. The fashion brand said that under Schulman’s leadership, it would focus on “more of the timeless, classic attributes” Burberry is known for. This includes its trench coats and scarves.

Murphy replied: “No. This is a very British brand. We are based in the UK.” He acknowledged Burberry’s disappointing results, but said that the company had “all the plans in place” to improve them.

Jonathan Akeroyd, former chief executive officer of Burberry, has resigned from his position

Murphy stated that Burberry has not had any “serious conversations” about Akeroyd’s replacement until recently, and that he spoke to Schulman about a possible role in the board.

He stated that Akeroyd “was very popular and well-liked here by everyone, including the board.” “But sometimes, things don’t go as planned. You have to adjust your plans. That’s what Jonathan and I agreed on.”

The news comes just a few days after Thierry Andréta, 67 years old, quit as chief executive at Mulberry after nearly a decade of running the British luxury bag maker. Mulberry has also struggled in the wider luxury industry downturn.

Three hedge funds made a total of over 20 million pounds sterling in paper profits on Monday, after the London Stock Exchange saw Burberry’s shares fall by 16 per cent.

The day was painful for investors, but a group of investment firms known to short the stock welcomed the sale. Marshall Wace, the London hedge fund founded by Sir Paul Marshall (64), the GB News supporter, AHL Partners, and Millennium International Management have a combined 4.3 percent short position in Burberry. This is equivalent to around £138 million before trading started this week.

Analysts at Deutsche Bank noted that investors were “growing increasingly frustrated by Burberry’s performance and seeking a change of strategic direction”.

Sir Paul Marshall founded the London-based hedge funds Marshall Wace

According to the Financial Conduct Authority’s filings and the data compiled by Castellain Capital, Burberry ranks eighth in the list of the most heavily shorted stocks on the London Stock Exchange. Ocado Kingfisher, and Asos were the only London-listed retailers with a larger short position.

According to the latest fall in the share price of Burberry alone, it was estimated that the three shorts had at least £22 Million in paper profits.

Before this week, shares in Burberry were down by 58 percent over the last 12 months. Hedge funds had been preparing for a sale for some time.

Short-selling is the practice of borrowing shares from existing investors and selling them on the open markets with the intent to buy them back at a lower price later if the stock price drops, then return them to the owners, profiting off the difference. According to FCA transparency regulations, all positions over 0.5 percent are reported and made public.