Burberry warning shakes the luxury market

Burberry, which makes its iconic raincoats in Yorkshire, 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 19 per cent 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 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 September 8 from 6 per cent 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.

“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 fashion forecasting company, Trendstop.com.

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

Last month bag-maker Hermes raised its target for annual sales growth and Italian brand Salvatore Ferragamo issued a buoyant trading update.

Burberry had been expected to post pre-tax profit for the year to March 2013 of between £407m and £451m, with a consensus of £433.2m, according to a poll of analysts.

Burberry makes its heritage trenchcoats at a red-brick factory in Castleford employing 600 people.

The group also has a factory at Keighley, where it prints and weaves many of its fabrics.