Market Overview

Is Burberry Moving from the Catwalk to the Trailer Park?


In England, the past ten years has seen a new phenomenon called Chavs taking over the once great kingdom. The best way to describe them to Americans is to think of those toothless trailer-dwelling people you see on Jerry Springer or Maury, the guys and girls wearing sweatpants and repairing an old Ford in the front yard, fitting an oversized exhaust in the process while swigging Boone's Farm (Blue Hawaiian). The people with four children via three different partners. Then put a Burberry cap on their heads.

In the UK, the Burberry pattern of camel, red and black check has become synonymous with chav culture, something which has caused the 156-year-old company a great deal of despair. The once-classy label is now seen as the visual embodiment of everything that is wrong with British youth.

However, judging by the latest numbers released in the U.S., Burberry would not mind the American chav equivalents to start wearing the baseball caps and shirts like their British brethren. According to Reuters, Burberry has been hit by dreadfully slow U.S. sales growth.

With shares down 1.9 percent, the numbers are not exactly nightmarish, with Q3 revenues at 547 million compared to the 569 million forecast. Things are just slowing down, and that will raise a few eyebrows.

Part of the reason for the screeching of brakes is the fact that Burberry has chosen to cut back supplies to department stores like Macys (NYSE: M) in order to sell through their own discount outlets.

The question is, if clothes are perennially available on discount, does that still class as a discount?

It is the sort of move that would delight the chavs in Britain, and it may aid the transition of Burberry in the States from classy designer label to something you will see hanging around outside of liquor stores asking you to buy some alcohol.

Be very careful America, and Burberry. This is a road you do not want to go down, and certainly not twice.

"Nothing wrong with the overall numbers, however the poor performance in the U.S. and the weak 4Q guidance may worry the market," Liberum analysts said in a research note.

As of 4.15 a.m. EST, Burberry shares were down 1.9 percent at 1,275 pence, which represents the biggest fall at that time by a European blue chip stock.


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