The holidays may be over, but luxury companies are still reeling from the impact it had on their sales. Take Burberry—the British brand, known for its striped trench coats and famous check, saw weak sales in December, typically the key time of year for retailers to make a killing.
The luxury fashion house has now lowered its full-year profit forecast due to the Christmas period slowdown, Burberry said Friday.
“We experienced a further deceleration in our key December trading period and we now expect our full year results to be below our previous guidance,” Burberry CEO Jonathan Akeroyd said in a statement.
The company adjusted its annual operating profit forecast to £410 million to £460 million ($523 million to $587 million) for its fiscal year ending in March, down from its previous estimate of £552 million to £668 million.
The British outlet’s profit warning is its second in a span of three months, pointing to a persistent pull-back in luxury spending. In November, as Burberry announced its second-quarter earnings, it cautioned investors that it would likely hit only the lower end of analysts’ estimates for annual profits. Burberry’s revised dip in profits underscores the pain that luxury retailers have been facing due to inflation and high cost of living, even as they enter 2024.
The British luxury brand’s retail revenue tumbled 7% in the 13 weeks to Dec. 30, with comparable store sales down by 15% in America and 5% in Europe and the Middle East.
“Unlike your average fashion retailer, it is simply not the Burberry way to slash prices and hope bargains lure in shoppers,” AJ Bell investment director Russ Mould said in a Friday note. “Therefore, Burberry has no choice but to ride out the storm until the wealthier are feeling confident enough to splash the cash once more.”
Burberry shares slid 9.5% as of Friday 11:30 a.m. GMT.
Luxury on a murky road ahead
The company has been on the path to overhaul its brand by leaning into its “Britishness” and in the long term become a £5 billion business since Akeroyd took over in 2022. The Burberry chief said on Friday that he is “confident in our strategy to realize Burberry’s potential” and hit its medium-term £4 billion revenue goal. Its effort to jumpstart the brand have coincided with a period when consumers facing economic pressures are hesitant to spend money on expensive items.
“The idea that wealthier individuals would completely brush off inflation and the cost-of-living crisis has been thrown in the bin. No sector is entirely immune from such pressures and over the past six months or so we’ve seen cracks appearing in the luxury goods sector as demand wanes,” Mould said.
Luxury brands across the board—from Dior-parent LVMH to Cartier-owner Richemont and Gucci-owner Kering—already began feeling the pinch as the brands reported a slowing demand for their high-end goods. Challenges like the Chinese economy’s slow rebound are also adding to the uncertainties faced by the luxury industry, which experienced a massive boom during the COVID-19 pandemic.
While it may seem like luxury brands have tipped over to the dark side despite catering to a wealthy clientele, analysts told Fortune that the slowdown in the luxury industry is best interpreted as a normalization of the unusually high growth rates seen a few years ago.
“Fundamentally, it’s not sustainable, nor should it be,” Flavio Cereda, investment manager at Zurich-based asset management firm GAM, told Fortune in an interview last year, referring to the high growth rates seen in the luxury segment. “I think what you see this year is this deceleration, which is a process toward normalization. It looks worse than it is because it comes from a very high level.”
