The Wall Street Journal-20080116-Earnings Digest- Burberry May Miss Profit Forecast- Europe-s Luxury Lines Feel Economic Pinch- Shares Decline 16-
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Signs that the U.S. economic misery is spreading to Europe's luxury- goods sector grew yesterday as British fashion house Burberry Group PLC cautioned that it might miss its 2007 full-year earnings estimates.
Burberry shares fell more than 16% to 406.5 pence ($7.94) after Chief Financial Officer Stacey Cartwright said the company would face "a bit of a stretch" meeting analysts' estimates for full-year earnings before interest and tax of GBP 210 million, or about $411 million. Burberry had confirmed the analysts' expectations in November.
The cautious assessment by Burberry, a brand known for its raincoats and check pattern, is among a few recent signs that European luxury- goods makers, which sell a large chunk of their wares in the U.S., are coming under pressure as one of the luxury sector's biggest markets sputters.
Italian high-end eyewear maker Luxottica Group SpA warned last week of a slowdown in U.S. holiday spending, echoing caution by U.S. leather-goods maker Coach Inc. Luxury retailer Tiffany & Co. trimmed the top end of its profit forecast after a weak performance during the holiday-shopping season.
As a result, analysts are starting to warn that the luxury market's big-spending clientele, despite their affluence, aren't immune to the economic weakness that has shaken makers of cheaper goods.
"The market now factors in a tough environment and possibly the fact that exposure to apparel is making the Burberry call a riskier one in that context," Erwan Rambourg, luxury-goods analyst at HSBC, wrote in a research note.
Burberry said that in the last three months of the year, total sales revenue rose 23% to GBP 254 million, with a 19% jump in North America.
Total wholesale revenue, which is generated through sales to department stores and other third-party retailers, surged 74% at constant exchange rates.
However, the company said retail sales came in "modestly behind our plan," rising 12% despite an aggressive rollout of new stores in the U.S. Nearly half of Burberry's 94 stores world-wide are in the U.S.
Burberry also warned that a large portion of those sales were made at markdown prices, although the company didn't disclose how much. Spain, another key market for the brand, also produced sluggish retail-sales growth, the company said.
Burberry has been on a push over the past year to broaden its offerings beyond its core apparel, opening stores dedicated exclusively to higher-margin accessories such as leather handbags.
