Burrberry shares plunge to a 14-year low, but what’s behind the collapse?

Once a beacon of British heritage and craftsmanship, Burberry’s recent decline has been striking. Shoppers and investors seem to have fallen out of love with the retailer. Sales have plunged, and Burberry shares have fallen 70 per cent over the past year. Earlier this week, the stock touched a 14-year low before rebounding.

While the luxury goods sector as a whole has faced challenges, the speed and severity of the London-listed brand’s fall from grace stands out. Its decline has earned it an unenviable spot among the FTSE 100’s worst performers of 2024 so far.

A toxic cocktail of issues is behind the decline—some due to the company’s own missteps and others from sheer bad luck.

Dire financial results

Burberry shares nosedived last month as the company revealed how badly it had performed in the first half of the year.

For the 13 weeks ending 29th June, the company’s comparable store sales—excluding the effects of new openings, closures, and renovations—fell by 21 per cent compared to the same period last year.

Burberry explained: “The slowdown in trading we experienced in [the first quarter of our financial year] continued into July. If this trend were to continue through the current quarter, we would expect to report a half-year operating loss and full year operating profit to be below current consensus.

“As we navigate this period, we have decided to suspend dividend payments in respect of [the financial year to the end of March 2025] in order to maintain a strong balance sheet and our capacity to invest in Burberry’s long term growth.”

As a result, Burberry suspended its dividend. It also revealed it was discussing potential job cuts with employees, with around 200 positions on the line worldwide.

This disappointing set of results was particularly notable because, 12 months earlier, the company had celebrated a strong performance for the first quarter of its 2023 financial year.

In mid-July 2023, Burberry shares surged around six per cent after the brand announced an 18 per cent increase in sales for that quarter.

The sharp 180 from success to losses shocked investors who didn’t waste any time as they headed for the exit.

Burberry’s boardroom merry-go-round

Leadership changes at Burberry have also impacted its share price, creating an environment of uncertainty which has contributed to the volatility in its share price.

Marco Gobbetti, who took the reins as CEO in July 2017, played a pivotal role in stabilising the company after the misstep of appointing Christopher Bailey as both chief creative officer and chief executive in 2013.

Bailey’s dual role never sat well with the City, particularly after Burberry handed him a £7.6m share package. Confidence waned further with the departure of John Smith, the company’s COO.

Gobbetti’s tenure was cut short when he left in 2021 to lead Salvatore Ferragamo, leaving his work at Burberry arguably incomplete.

Since then, Jonathan Akeroyd’s leadership has seen a series of high-profile exits, including Riccardo Tisci and Julie Brown, the widely respected CFO and COO.

Most recently, Burberry announced that Rod Manley, its chief marketing officer, would depart by the end of the year, fuelling speculation about the future of Daniel Lee, Burberry’s chief creative officer, following Akeroyd’s departure.

Investors will be watching Joshua Schulman, the company’s newest CEO, closely to see if he can finally bring some much-needed stability to the boardroom.

Branding blunders and identity crises

Under the leadership of former CEO Marco Gobbetti, Burberry sought to elevate its brand positioning by focusing more on high-end luxury and reducing the availability of its products in lower-tier markets.

This strategy initially received positive feedback, stabilising the share price as investors saw potential for long-term growth.

However Gobbetti’s departure and the subsequent arrival of Jonathan Akeroyd brought uncertainty, with each new leader bringing different visions for the brand, causing fluctuations in investor confidence and, by extension, its share price.

What’s more, the company has been trying to strike a balance between its heritage as a quintessentially British luxury brand and the need to appeal to a younger, more global audience.

This strategic shift has included new designer hires, marketing campaigns, and product lines. Unfortunately for Burberry, many of these design choices have failed to resonate.

The brand’s departure from its iconic camel, red, and black check pattern didn’t sit well with the brand’s loyal followers.

Meanwhile, increased competition from other luxury brands and the rise of new, disruptive players in the fashion industry helped to erode the British designer’s market share.

Can Burberry shares bounce back?

The general consensus is that things could get worse for the British icon before they improve.

Analyst forecasts predict the company’s revenue will fall five per cent to £2.7bn in its 2025 financial year.

The brand’s comparable retail sales are expected to drop by 15 per cent in the first three months of the year, which will level out to a decline of three per cent by the end of 2025.

“The combination of weak social media and Google search trends, as well as muted feedback from the trade on Burberry’s new collection, give no reason to believe that its momentum is accelerating,” UBS analyst Zuzanna Pusz said last month in a note.

“While Burberry’s doing a lot of things right behind the scenes, like investing in products and distribution and even refreshing the management team, its short-term picture remains fraught with real challenges and uncertainty,” Aarin Chiekrie, equity analyst at Hargreaves Lansdown, said.

“On their own [job cuts] are likely to only be a sticking plaster, and if this means customer service, or creative capabilities are compromised, it could do further long-term damage to the brand.

Friendlander said that to move forward and avoid a buyout, Burberry needs “stable and visionary leader to guide the brand through its hurdles and towards digital transformation and innovation.

“It could be a while yet before sentiment swings and Burberry begins to bloom again,” Chiekrie noted.