The luxury stocks market faces a challenging start to the year, extending the downward trend from 2023, as Burberry Group Plc’s surprising profit warning delivers a significant blow to hopes of a quick recovery. Burberry shares witnessed a substantial 15% one-day decline, the largest in over a decade, after revising down its profit forecast due to a slowdown during the crucial Christmas quarter.
While Burberry shares saw a partial recovery, trading 7.5% lower in London, the impact rippled through the sector. Peers like LVMH, Kering SA, and Richemont SA experienced a selloff, wiping out as much as $7 billion from the luxury stocks sector. This setback follows a more than $200 billion decline in major luxury stocks since April last year, primarily due to the fading momentum in China’s luxury market.
China’s initial surge in luxury purchases during its reopening lost momentum, leading to a significant downturn in the sector. Analysts, including Goldman Sachs Inc., have revised down growth forecasts for the luxury industry, reflecting the challenging market conditions.
Bernstein analyst Luca Solca highlighted the difficulty of implementing self-help measures in such challenging market conditions. Burberry’s disappointing performance in the crucial fourth quarter of the previous year underscores the formidable challenges faced by luxury brands.
A day before Burberry’s warning, Bank of America analysts, led by Ashley Wallace, cautioned that it was «still too early to buy the luxury pullback.» Wallace emphasized that the earnings momentum for the sector could remain soft for at least six months, with no clear catalyst for a re-rating until signs of a turnaround become visible. The luxury stocks market navigates uncertainties as brands grapple with ongoing challenges in the luxury retail landscape.
