Business analysts said earlier today that Burberry, the famous British luxury goods designer, was expected to benefit from Brexit and a fast crashing sterling but the forecast came out wrong as the company’s shares performed contrary to an expected £125m profits.
Burberry’s shares dropped 6.9 per cent at the open, according to a report from CityAM.
The British pounds sterling has seen the worst decline in recent years since UK voted for Brexit in June this year. And financial reports in recent weeks show the currency is fast losing value.
The luxury goods group carried out a business forecast using September 30 exchange rates. With the available records, all retail/wholesale profits for 2017 was adjusted to arrive at a likely business profits expected to stand around £105 million before today.
Burberry extended the forecast using an upward trend in the country’s exchange rate which recorded an increase between September 30 and October 12 to arrive at an estimated £20m additional profit to the earlier £105m.
Although the British conglomerate gained huge profits in the first half of 2016, the months that followed until September that year witnessed an unexpected revenue fall – four per cent to £1.16bn.
However, retail revenue was up two per cent, to £859m, the 2016 record shows.
“In a challenging external environment, we continue to focus on product innovation, retail productivity and digital leadership, against a backdrop of sustained action and investment to deliver long-term out-performance of our brand and business,” said Burberry chief creative and chief executive officer Christopher Bailey.
“The progress we are making to improve our ways of working, the agility of our teams to react to changes in consumer behaviour and the strength of our brand give us confidence for the future. We remain on track to deliver our financial goals.”
CityAM quotes Swiss bank UBS as having predicted that Burberry could still make huge gains from the drop in sterling back in July, when it said the “weak pound more than offsets weak sector trading”.
Burberry on Tuesday said it has seen “significant outperformance in the U.K. in the second quarter,” although the company continued to struggle in Hong Kong and said it saw an uneven performance in the U.S., Market Watch wrote.
According to a Financial Times report, the company said it planned to “rebalance marketing from brand towards key products”.
Part of that would be a renewed focus on bags, where it admitted it had fallen behind peers.