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updated: 9/11/2012 6:37 AM

Burberry rattles luxury-goods industry as revenue growth slows

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  • Burberry Group Plc, the U.K.'s largest luxury-goods maker, said full-year profit will disappoint after sales growth slowed globally, sending the shares down the most ever and rattling those of peers.

      Burberry Group Plc, the U.K.'s largest luxury-goods maker, said full-year profit will disappoint after sales growth slowed globally, sending the shares down the most ever and rattling those of peers.
    Associated Press

 
Bloomberg News

Burberry Group Plc, the U.K.'s largest luxury-goods maker, said full-year profit will disappoint after sales growth slowed globally, sending the shares down the most ever and rattling those of peers.

"We know we are not alone in terms of what we've seen in the last couple of weeks," Chief Financial Officer Stacey Cartwright said, citing conversations with other luxury-goods makers. "Traffic is down."

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Burberry fell as much as 20 percent, the steepest drop since the company's 2002 initial public offering, while LVMH Moet Hennessy Louis Vuitton SA, Compagnie Financiere Richemont SA and PPR SA also slumped. Profit for the year through March will be at the lower end of analyst estimates, Burberry said, dealing a second blow to investors in the space of two months. In July, the company reported slowing sales as licensing revenue slipped, trailing estimates for a second straight quarter.

"Burberry is not immune from wider macro-economic turbulence" and has seen "a significant slowdown," Bethany Hocking, an analyst at Investec Securities, wrote in a note.

Burberry was down 18 percent at 1,127 pence as of 10:02 a.m. LVMH dropped as much as 4.6 percent in Paris trading, Richemont fell as much as 5.9 percent in Zurich and PPR, owner of the Gucci brand, declined as much as 4.3 percent.

The deceleration in revenue growth "is a global phenomenon, primarily driven by lower traffic," Fraser Ramzan, an analyst at Nomura, wrote today in a note, lowering his recommendation on the stock to neutral from buy.

Slowing growth

Sales at stores open at least a year were unchanged in the 10 weeks ended Sept. 8, with a "deceleration in recent weeks," Burberry said in today's statement. Retail sales, excluding currency shifts, rose 6 percent, compared with growth of 14 percent in the first quarter, the company also said.

"We started the quarter at low- to mid-single digits and we've ended up flat," Cartwright said. "That says that the last couple of weeks have turned negative," she said, calling the slowdown "broad-based in all of the regions."

Before today, analysts had estimated adjusted pretax profit for the year of 407 million pounds ($652 million) to 454 million pounds, according to Burberry. The average estimate of 14 analysts compiled by Bloomberg was about 429 million pounds.

Sales have slowed in China ahead of a once-a-decade leadership transition by the Communist Party later this year, Cartwright said, echoing comments this week by Ermenegildo Zegna, chief executive officer of the Italian luxury-goods maker that bears his name. There has also been a slowdown in gift- giving, the Burberry executive said.

Managing costs

"The traveling consumer out of Asia, out of China in particular, may not be as prevalent as they were in terms of some of the entry price products, the aspirational luxury products," Cartwright said. "That's potentially hitting Europe these last few weeks."

U.S. sales were disproportionately impacted by a decision to remove some opening-price-point handbags and trenchcoats as Burberry seeks to increase its upscale positioning, Cartwright said. Spending has also been affected by upcoming elections.

"All of that is adding to the uncertainty," Cartwright said. "There's stuff coming from all directions."

Burberry is "taking appropriate actions to protect short- term profitability," CEO Angela Ahrendts said in the statement. This includes better managing discretionary spending by clamping down on areas such as hiring and travel, Cartwright said.

The company's guidance for wholesale and licensing revenue remains unchanged, Cartwright said.

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