(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 today in a phone interview, citing conversations with other luxury-goods makers. "Traffic is down."
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, Cie. 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.
"I'm not necessarily convinced that it's just Burberry specific," John Guy, a consumer-goods analyst at Berenberg Bank in London, said in a phone interview. Few competitors have yet to report sales for the period, he said.
Burberry was down 19 percent at 1,118 pence as of 12:43 p.m. LVMH dropped as much as 4.7 percent in Paris trading, Richemont fell as much as 6.5 percent in Zurich and PPR, owner of the Gucci brand, declined as much as 4.3 percent.Earnings Estimates
"We would not be surprised if other luxury players are seeing similar trends" to Burberry, Kate Calvert, an analyst at Seymour Pierce in London, wrote today in a note, cutting her recommendation on the stock to hold from buy.
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.
The economic environment is becoming "more challenging," causing sales growth to slow, Burberry Chief Executive Officer Angela Ahrendts said today in a statement.
In China, where a boom in demand for watches and jewelry has spurred sales gains for luxury-goods companies, revenue has slowed ahead of a once-a-decade leadership transition by the Communist Party later this year, Cartwright said. There has also been a slowdown in gift-giving, the executive said.Slowing Growth
"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."
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."
Still, some of the weakness in sales may be "self- inflicted," said Berenberg's Guy, citing Burberry's attempts to move upscale by cutting some opening-price-point products, particularly in the U.S.Cost Management
The U.K. company's faltering growth contrasts with luxury- goods makers including Salvatore Ferragamo SpA. The Florence, Italy-based shoemaker's August sales were "surprisingly positive" in the U.S. and Europe, underpinned by international customers, while growth in China is "still significant," Chief Executive Officer Michele Norsa said last month.
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.