Burberry warns on profit as luxury demand ebbs

LONDON, Jan 12 (Reuters) - Britain's Burberry (BRBY.L), opens new tab blamed a worsening slowdown in demand for luxury goods for its second downgrade in three months, and warned of a tough challenge ahead as it launches a strategy to move upmarket, in a blow to its shares.

Burberry's profit warning is a major setback to CEO Jonathan Akeroyd's turnaround plan as he tries to lift the brand under the creative guidance of designer Daniel Lee, whose first collection was introduced last September.

The global sector, including French luxury group LVMH which owns Louis Vuitton and Dior, Kering (PRTP.PA), opens new tab and privately owned Chanel, is being hit by softening demand, but for Burberry the timing is particularly tough.

Its new look is aimed at stoking interest in the brand with better quality, higher priced products, such as the 2,890 pound ($3,582) medium-sized leather "Knight" bag.

Shares in Burberry sank 7.4%, extending losses over the last year to 44%, while LVMH (LVMH.PA), opens new tab was down 1% and Kering, which is overhauling its star label Gucci, was down 1.4%.

Investors will learn more on the state of the sector with updates from Kering on Feb. 8 and Hermes on Feb. 9.

Burberry's CEO remained confident in its new approach.

"We're very excited about the strategy that we have ahead of us and we're focusing on execution but if the macro environment slows down for our sector this brings extra challenges," Akeroyd, CEO since April 2022, told reporters.

"We did see a deceleration in December ... This was really the case with most regions," he said, adding that there was a particularly weak performance in the Americas, where comparable store sales fell 15% in its third quarter to Dec. 30.

"Initially that softness came from a more aspirational customer, it's become a bit broader now," he said.

Burberry now expects full-year 2023/24 adjusted operating profit in a range between 410 million pounds ($523 million) and 460 million pounds.

In November, it had said the key profit number would be towards the lower end of analysts' forecasts at the time of 552 million pounds to 668 million pounds.

For luxury brands, conflict in the Middle East has added geopolitical uncertainty to an industry outlook already clouded by inflation, with shoppers in the U.S. and Europe tightening their purse strings while expectations for a strong post-pandemic rebound in China were derailed by a property crisis.

Burberry said retail revenue in the 13 weeks to Dec. 30 was down 7% at 706 million pounds, with comparable store sales 4% lower.

They were up 3% in the Asia Pacific region, which includes Mainland China where sales rose 8%, but down 5% in Europe.

"The cracks appearing in luxury demand are very telling. So-called aspirational shoppers are one of the demographics pulling back, and Burberry is more exposed to this type of customer than super-high-end luxury," Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown said.

(This story has been corrected to say profit warning rather than second warning, as the November statement was a downgrade, in the headline and paragraph 2)