Burberry slowdown points to cracks in luxury sector

The first signs that the luxury sector may not be immune to the global economic crisis came today with British success story Burberry revealing a slowdown in sales growth.

Total sales came in at £408 million for the three months to the end of June, showing an underlying increase of 11%. That is down from 15% in the previous quarter and is below analysts’ forecasts of 13%.

The shares fell 5.5% this morning to 1213p and chief executive Angela Ahrendts admitted it was facing a “more challenging external environment”.

The sales slowdown came as Burberry confirmed its new flagship store on Regent Street will miss the Olympics. It will not open until September, having previously been earmarked to open during the summer.

The luxury sector, having previously shrugged off any economic woes, is now beginning to show signs of the impact of Europe’s debt crisis and the slower growth of emerging markets, including China.

Stacey Cartwright, chief financial officer at Burberry, said: “This is a robust performance. We were up against tough comparisons. But we have a huge amount of brand momentum and we are in line, or better than peers.”

Bethany Hocking, analyst at Investec, said: “We expect Burberry’s shares to suffer today. We note, however, that full-year guidance appears unchanged and the first quarter is Burberry’s smallest quarter. It is also against the toughest comps.”

Burberry has been putting its house in order, tidying up messy licence agreements in Japan and focusing on a “legacy clean-up”, getting rid of cheaper product lines and selling less through discount outlets. This has impacted sales, Cartwright said, but would mean margins had improved.

Cartwright said it had been “eliminating the non-British-made outerwear at the lower price points” and focusing on “weaved British-made fabrics”.

Despite being hit by a 5% drop in licensing revenue, sales from shops had jumped 14% to £280 million and comparable store sales were up 6%.