Burberry’s share price fell 6% this morning after news broke that the luxury fashion chain’s growth has started to slow. That’s not to say sales did not increase: They were up 11% to £408m for the quarter to June 30, compared with £367m in the same period the year before. Evidently, this was not enough for shareholders, who want the firm’s accelerated growth in emerging markets to continue apace.
There were other encouraging indicators too: growth in menswear revenues has boosted retail sales from £245m to £280m. Burberry said in a statement that there had been a ‘further increase in [our] average selling prices, driven by product innovation.’ So prices are increasing, total revenue is increasing, and specifically retail sales – which the firm is trying to grow – are increasing. Six large new stores have also opened in the last quarter including one each in Hong Kong and Brazil, with plans to increase total retail space by around 13% this year. So what’s the matter with these grumpy shareholders?
Well, if the adage is anything to go by: shareholders don’t like surprises. If they were expecting bigger increases across the board, then the results will be disappointing and it gives a sense that either the management do not quite know what is going to happen next, or the company’s growth is suffering an intractable slowdown: both of these are undesirable for shareholders who want reliable (and healthy) returns on their investments.
The firm’s chief executive, Angela Ahrendts, was upbeat about the results, however: ‘With continued brand momentum, Burberry has delivered a robust first quarter…against a more challenging external environment.’ Definitely the view of an optimist given the backdrop of disappointed investors. It is worth noting however, that the first quarter is traditionally Burberry’s smallest, and investors will know that while economic turmoil continues in the eurozone, Burberry’s exposure to rapidly growing emerging markets makes it one of the safer bets amongst British retailers.
But with both China and India now beginning to see their growth slow down, Burberry may have its work cut out to get those returns back to the level shareholders are used to…