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May 27, 2017

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Burberry profit warning chills luxury rivals

LONDON/PARIS--British fashion house Burberry's profit warning on Tuesday gave the clearest sign yet that a slowdown in China and Europe's debt crisis is bringing a nearly three-year boom in demand for luxury goods to an end.

Burberry, famous for its raincoats lined with a distinctive camel, red and black check pattern, is the first major luxury brand to make such a stern warning following investors' concerns over the last few months that demand in the sector is flagging.

Its shares tumbled 21 percent to an 11-month low and dragged down rivals in Europe and the United States including LVMH, the world's largest luxury goods group by market value.

Luxury companies, which rebounded strongly from the 2008/9 financial crisis, have withstood the ensuing global slowdown as demand from fast-growing China and other emerging markets compensated for wobbling sales in Europe and the United States.

But with China slowing, investors are now questioning how long and how well they will hold up.

"These are tricky times for the luxury sector," said Rogerio Fujimori, analyst at Credit Suisse. Burberry said sales growth at stores open for more than a year slumped to zero in the 10 weeks to Sept. 8 from 6-percent growth in the quarter to June 30, with a deceleration in recent weeks. As a result, underlying full-year profit would be around the lower end of market forecasts.

It did not say where the slowdown was, leading some analysts to suspect trading conditions were worsening in all of its major markets — Asia, Europe and the United States.

Shares in French rivals LVMH and PPR were both down more than 4 percent, while Swiss luxury group Richemont was down as much as 6 percent.

The warning also hit U.S. luxury companies, with shares in jeweler Tiffany & Co. down 1.6 percent and Ralph Lauren down 3.7 percent shortly after the New York market opened.

"The global economic crisis is dragging on and the longer it drags on the less confident even wealthier individuals become. Unfortunately, people lacking confidence do not shop at Burberry," said Jaana Jatyri, CEO of fashion forecasting company

But some analysts said it was not yet clear whether Burberry's warning was a red flag for the whole sector.

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