British luxury group Burberry fired its CEO on Monday and appointed former Coach head Joshua Shulman to replace him as the company promises a “more accessible” look and pushes ahead with efforts to revive the brand by moving upmarket.
The company also issued a profit warning and withdrew its dividend, sending its shares tumbling to their lowest in more than a decade.
The downturn in the luxury sector has hit the 168-year-old brand harder than its rivals, as customers have been largely unimpressed by a style shift that has moved beyond classic trench coats and accessories toward higher price points.
Underlying sales fell 21% in the 13 weeks to June 29. Burberry said that if current trends continued it would post a first-half operating loss and miss its full-year profit guidance, leading it to withdraw this year’s dividend to invest in growth.
Burberry, the worst-performing luxury stock over the past five years, saw its shares fall 17 percent to $9.86, trading at their lowest level since 2010.
The company is in a long recovery phase.
Shulman, who served as CEO of US brand Michael Kors from 2021 to 2022 and was boss and brand president of Coach before that, will become Burberry’s fourth CEO in 10 years.
He will take over from Jonathan Akerroyd on Wednesday after two years in the position.
Burberry has had three designers in the past decade, and Daniel Lee will take over in 2022 from Riccardo Tisci, who stepped down after less than five years at the helm.
Burberry, known for dressing Britain’s upper class in its classic camel, red and black check pattern, said the new offering would be “more familiar” to its core customers.
The group’s chairman, Gerry Murphy, told reporters that Li would stay on at the company and that the new CEO would not abandon efforts to move the company toward the upper end of luxury, which has endured a decline in discretionary spending.
Asked whether Burberry could become a British version of his former employer Coach, the American brand known for affordable luxury, Murphy said: “Josh’s appointment does not signal a restructuring of Burberry’s ambitions.”
“This is more a matter of tackling the wheel a little bit rather than a fundamental change in strategy,” Murphy said.
The company first raised the issue of needing to return to classic designs after sales plummeted in May when it introduced Lee’s bold, expensive collection of runway fashions in stores.
Only the upper end of the luxury sector has weathered the effects of inflation and an economic slowdown, along with a real estate crisis and record youth unemployment in China’s potentially huge market.
Swatch Group, the world’s largest watchmaker, on Monday reported a sharp drop in first-half sales and profits, further fuelling investor concerns about slowing demand in China.
Burberry has the lowest price-to-earnings ratio (PER), a ratio widely used in financial markets to measure the relative value of stocks, in the luxury goods sector.
The company trades at 16 times projected earnings over the next 12 months, well above the 22 times traded for other global luxury goods stocks.
At the same time, Burberry’s warning on Monday dented confidence among its peers. Shares in European luxury groups Hermes and LVMH both fell more than 1%.
Analysts had expected Burberry to shift its strategy further than it has previously acknowledged.
“Investors have been increasingly dissatisfied with Burberry’s performance and have been calling for a strategic reorientation. We expect this to start as a gradual change but evolve into a more significant shift over time,” Deutsche Bank analysts said in a note.
The bank rates the shares a “hold” and has a target price of 800 pence.
Asked about the reported job cuts, Chief Financial Officer Kate Ferry said the company was looking to cut costs and that hundreds of jobs could be cut, mainly in its UK corporate division, but declined to comment further.
