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Burberry profits warning wipes US$ 1,6 billion off stock market value

British premium brand Burberry shocked the markets on Wednesday with a warning that sales had stalled in the clearest sign yet that slowing demand from China is having an impact on the booming sector.

The profit warning wiped £1bn off Burberry’s market value, sending shares in the 156-year-old fashion house down nearly 19%. Following disappointment from Coach and Ralph Lauren in recent weeks, this is the first major disappointment for European luxury brands, analysts said. The shine has also come off sales at New York-based jeweller Tiffany.

Experts predict that the global slowdown will lead to the rise of more affordable luxury lines and with Chinese shoppers becoming more discerning in what they buy. Burberry’s chief executive Angela Ahrendts said: “As we stated in July, the external environment is becoming more challenging.”

However, there are growing signs that China’s economy is coming off the boil, with imports shrinking unexpectedly in August and factory output hitting a three-year low. Burberry’s profit warning came a day after the Chinese government scaled back its consumer growth targets for the five years to 2015 to an average annual rate of 15%, down from 16.1% in the past decade.

 

Burberry, Regent Street, London

 

Jon Copestake, retail analyst at the Economist Intelligence Unit, noted that Burberry shares had been on a rollercoaster over the last 12 months, amid resurgent fears over the strength of China’s economy. “There is certainly an element of panic here,” he said. “Retailers’ reliance on China could be problematic. A lot depends on how the Chinese property bubble goes. Eyes remain firmly fixed on China to gauge whether slowing growth will undermine the ambitious expansion undertaken there by luxury brands in recent years.”

adapted from The Guardian / Reuters

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