Burberry’s profits fell by 40% over the past year due to a general slowdown in luxury goods demand that has affected sales in Asia, and Americas.
In its preliminary results published on Wednesday, the high-end UK retailer of fashion posted a profit before tax of £383m. This is a 40% decrease from the £634m it made in the 12 months prior. The second half of this year saw global sales drop by 8%.
It has said that it expects a difficult first half of the year. The company promises to balance investments in areas where consumers are involved with cost-control.
The company had issued a profit warning back in January. It predicted operating profits between £410m to £460m for the entire year . They blamed the increase in interest rates and the rising cost of living on the decline. The adjusted operating profit was £418m, according to the results announced on Wednesday.
Shares of the company fell by 3% during early trading before recovering to a 1.5% decline. Shares are 53 percent lower than they were at this time last.
The overall sales were down by just 1% from the previous year, but the second half was particularly slow with sales down 8%. The sales decline was due to a drop of 14% in second-half sales and 12% for the entire year in the Americas.
In Asia and Pacific, sales rose by 3% for the entire year. However, they plummeted by 7% in the second half compared to the previous year. China was the main driver of this, with sales dropping by 19% in the last quarter of the previous year.
Mulberry , Burberry’s British luxury brand, reported a 4% drop in sales last week. Mulberry blamed the slowdown in luxury purchases in Asia and the UK. Kering , a luxury fashion group, issued a profit warning in March after reporting that the demand for Gucci, its flagship brand, had dried up.
Yanmei Tang is an analyst with Third Bridge. She said, “Burberry has been affected by the slowdown in the luxury industry.” The high-end market has become more selective about the products they purchase.
Our experts believe that Burberry struggles to define and elevate its brand image, which results in confusing messages and poor growth. It is more important to focus on the creative direction than make operational changes.
Jonathan Akeroyd said, “It has been difficult to execute our plan in the face of a slowing demand for luxury goods.”
While our financial results for the full year fell short of our expectations, we made progress in refocusing our image, improving our product, and strengthening our distribution, while delivering improvements to our operations.
“We remain confident that we can successfully navigate through this period and realise Burberry’s full potential as a modern British luxury brand.”
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