Market Overview

Burberry's Soft First Quarter May Indicate Retail Trouble Overseas


London-based luxury retailer Burberry (LON: BRBY) felt the rain fall down on its infamous plaid printed umbrella this morning, as the company experienced a fairly soft first quarter, further proving that overseas economic troubles are well underway. Consumers are not as willing to spend on extravagant apparel during tough times, as the high-end brand saw licensing revenue sink 5 percent lower year-over-year to about $40.4 million.

The European economy has certainly seen better days, as retailers and food distributors alike have been struggling over the past few quarters, regardless of where they are based out of.

Today's Burberry earnings have only helped to heighten suspicion that a country-wide financial turnaround may be farther off in the future than many expected. However, the retailer cherished the positive feats of its first quarter report in a time of uncertainty.

"Revenue was up 11% against a more challenging external environment. Sales in retail, now about 70% of the business, increased by 14%, with initiatives to elevate brand equity balanced by improved store productivity and new space," Burberry CEO Angela Ahrendts commented.

"Building on our balanced business model and strong operational foundation, we continue to invest in our retail, digital and marketing strategies to drive long-term sustainable growth, while remaining responsive to the changing external environment.”

Burberry is certainly not the only fashionable retailer that must operate under the fluctuating economic conditions, as many U.S. retailers greatly depend upon European consumers for increased revenue and profit as well.

Luxury brands such as Tiffany & Co. (NYSE: TIF) and Coach (NYSE: COH) have been facing cautious investor confidence as of late, signifying that neither retailer can afford to slip-up at home or overseas in future earnings reports.

According to Canaccord Genuity, Tiffany's recent 14 percent decline (versus the S&P 500 Index up 3 percent) has positioned the retailer in a worst-case scenario situation. While the firm indicated in an early July report that investors should buy shares on significant global expansion opportunities, it appears that just the opposite may be true in Europe.

Burberry's soft start to the year has generally indicated to analysts that luxury is a tricky business to be in, currently. Morgan Stanley sent out a clear warning in a report this morning that Burberry's lackluster highlights should caution European peers such as Louis Vuitton (BIT: LVMH) and Hugo Boss (PINK: HUGSF).

While high-end retail management crosses their fingers for stronger future quarters, the European economic spiral has shown no signs of slowing. As Burberry works to pick up the pieces from a soft earnings report, other luxury retailers remain cautioned that upcoming quarters may not produce the stellar numbers they are used to reporting.


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