Morning Note: Market news and a weak update from Burberry.

Market News

The dollar advanced and Treasuries fell as investors ratcheted up wagers that Donald Trump would win the US presidential election after an assassination attempt. The yield on 10-year Treasuries climbed six basis points to 4.24%, while gold held above $2,400 an ounce.

Equity markets have kicked off the week on a subdued note as China’s unexpectedly deep economic slowdown adds pressure on Xi. GDP expanded 4.7% year on year last quarter, missing estimates. Home prices posted further declines, while growth in industrial output, retail sales, and fixed-asset investment all slowed.

The FTSE 100 is currently trading 0.8% lower at 8,190. UK Rightmove House prices fell by 0.4% month on month in July. Sterling remains firm at $1.2960 and €1.1910.

Shares in some European luxury names are falling this morning following the release of weak results from Burberry (see below) and watchmaker Swatch Group.

Banks got hit at the start of the US earnings season, with results from Wells Fargo (-6%), JPMorgan Chase (-1%), and Citigroup (-2%) failing to fuel industry momentum. Goldman Sachs and BlackRock report later today.

The oil price trades at $84.25 a barrel. China’s June apparent oil demand slumped more than 8% from a year earlier to 13.7 million barrels a day.

Source: Bloomberg

Company News

Burberry Group has today released a very weak trading update covering the first quarter of its financial year to 30 March 2025. There is a risk the company will make an operating loss in the current half-year period and the dividend has been suspended. The company has also announced the appointment of a new CEO with immediate effect. In response, the shares have been marked down by 12% in early trading.

Burberry is a global luxury fashion retailer headquartered in the UK. At 29 June 2024, Burberry had 229 retail stores, 145 concessions, 56 outlets, and 33 franchise stores, excluding pop-up stores. The group was transitioning to a ‘new modern British luxury creative expression for Burberry’ which started appearing in stores in last Autumn. However, today’s statement highlights the transition is proving more challenging than expected at a time of slowing luxury demand.

The weakness the group highlighted coming into FY25 has deepened. In the 13 weeks to 29 June, Retail revenue fell by 20% at constant exchange rates to £458m. Comparable sales from stores trading over equivalent time periods (i.e., excluding the impact of permanent store openings and closings, or those closures relating to refurbishments) fell by 21%. The contribution from new space was 1%.

Almost all regions suffered a downturn in comparable store sales. Asia Pacific (-21%), made up of Mainland China (-21%), South Asia Pacific (-38%), Japan (+6%, the only riser), and South Korea (-26%). Elsewhere, Americas declined by 23%, while EMEIA was down 16%.

The trading weakness continued into July and the statement highlights that if the current trend persists through the quarter to 30 September, the group expects to report an operating loss for its first half.

In response, the company will rebalance its product offer to include broader everyday luxury items, refocus marketing on the classic attributes that Burberry is known for, and improve online functionality. The company will also drive operational efficiencies and deliver cost savings to offset the impact of inflation. These actions are expected to start to deliver an improvement in the group’s second half and to strengthen its competitive position and underpin long-term growth.

In a separate statement, the company has announced the appointment of Joshua Schulman as Chief Executive Officer, replacing Jonathan Akeroyd who is stepping down and leaving the company with immediate effect by mutual agreement with the board.

There was no update on the group’s financial position. We note at 31 March 2024, financial gearing stood at 1.4x net debt/adjusted EBITDA, above the upper end of the group’s target range of 0.5x to 1.0x. The increase in gearing was driven by lower profitability, working capital outflow, and the share buyback programme. In light of current trading, the company has decided to suspend dividend payments in respect of the current financial year. However, we note there is no change to the final dividend for the period ended 30 March 2024, which is currently scheduled for payment on 2 August.

In the current financial year to end March 2025, retail space is expected to be broadly stable, while wholesale revenue is forecast to decline by around 25% in H1 and 30% for the full year.

Source: Bloomberg