Burberry sales expected to fall by 20% amid luxury slowdown

Clothing brand is forecast to post a £45 million loss in its half-year results, as rumours of a takeover persist

A Burberry shop in London. The company is expected to post sales figures down 20% on Thursday. Bloomberg

Sales at Burberry are forecast to have fallen by a fifth when the UK's famous clothing brand unveils its interim results on Thursday, according to analysts' predictions. Like many other luxury retailers, Burberry has been struggling of late as consumers in key markets like China tighten their belts.

Analysts predict that Burberry, whose shares recently dropped out of London's blue chip FTSE 100 index, expect sales to come in at about £1.1 billion for the first half, a fifth lower than for the same period last year. Meanwhile, the company is predicted to post a loss of about £45 million, compared to last year's interim profit of £225 million.

In Burberry's first quarter figures, which came out in June, the company's sales in China dropped 21 per cent compared to a year earlier, while global revenue as a whole for the 13 weeks to the end of June was down 22 per cent at £458 million. Nonetheless, analysts at AJ Bell predict “better momentum” for Burberry in the second half of the year, which will include the winter months, normally a better time for retailers.

Burberry through the years – in pictures

Burberry's shares have struggled of late, recently hitting lows not seen since 2009. However, rumours of a takeover boosted the share price earlier this month, as a report in the trade journal Miss Tweed claimed Moncler, the owner of Stone Island, was considering making a bid for the British company. It's been speculated that LVMH, a large shareholder in Moncler, was pressing for an offer to be made.

Jelena Sokolova, senior equity analyst at Morningstar, said with Burberry's share price at its current level of around £8, Moncler would get a bargain, should a future bid be successful, given that Morningstar's fair value for Burberry is £13.30 a share.

“We believe there is about 70 per cent upside to our fair value estimate for Burberry,” she commented. “We believe Burberry is taking the first steps in the right direction strategically, with a marketing campaign that is focused on its iconic products like outerwear and scarves. This is where the brand strength lies, using humour and a good choice of influencers. We also believe the company is getting more pragmatic in terms of pricing.”

Focusing on its iconic chequered scarves and hats and cutting its cloth to suit its core customers on pricing is part of Burberry's latest turnaround strategy. The company has had four chief executives in ten years and it's hoped the incumbent Joshua Schulman, the former boss at the US fashion brands Michael Kors and Coach, will bring Burberry out of its current slump.

Burberry has dropped a plan to take the brand further up the luxury ladder, a scheme which cost them sales, because loyal core customers at the time were struggling with higher inflation and cost of living issues and were unprepared to pay higher prices. The high-end of the luxury market is the most desirable place for brands to be, because they are too a large extent insulated from any economic turmoil. However, market watchers point out the enormous difficultly and potential cost of moving a brand into a much higher luxury bracket.