British luxury group Burberry announced on Monday that it has dismissed its CEO and appointed former Coach executive Joshua Schulman as his replacement.
This leadership change is part of Burberry's strategy to adopt a "more familiar" look and reposition itself further upmarket.
The company also issued a profit warning and canceled its dividend, leading to a significant drop in its stock price to the lowest level in over a decade.
Burberry, a 168-year-old brand, has struggled more than its competitors during the recent luxury sector slowdown. Its efforts to diversify beyond classic trench coats and accessories have not resonated well with customers. In the 13 weeks leading up to June 29, underlying sales plummeted by 21%. The company anticipates reporting an operating loss for the first half of the fiscal year and missing annual profit forecasts. Consequently, Burberry has decided to scrap this year's dividend to reinvest in growth initiatives.
Burberry's shares fell 16% to 744 pence, marking the lowest trading levels since 2010. The company has been undergoing a prolonged turnaround.
Joshua Schulman, previously the CEO of Michael Kors and president at Coach, will be Burberry's fourth CEO in a decade. He will assume his new role on Wednesday, taking over from Jonathan Akeroyd, who has served as CEO for the past two years.
Burberry has experienced significant changes in its creative direction, with three designers over the last ten years. Daniel Lee replaced Riccardo Tisci in 2022, following Tisci's tenure of less than five years. The company initially acknowledged the need to return to its classic designs after a sharp sales decline in May, when stores featured Lee's bold, more expensive runway collections.
Chris Beauchamp, chief market analyst at IG, described Monday's announcement as a significant shift, highlighting the challenges Burberry faces in a market where Chinese sales can no longer be taken for granted.
Burberry's chairman Gerry Murphy admitted that the company had attempted to change direction too rapidly in a challenging market. However, he expressed confidence in designer Daniel Lee, who will remain with the company. Murphy noted, "We probably went a bit too far too fast with our creative transition."
Regarding potential job cuts, CFO Kate Ferry mentioned that the company would seek cost savings, with a few hundred roles possibly being cut, primarily within its UK corporate division.
Only the high-end segment of the luxury sector has remained relatively unaffected by inflation and economic slowdown, alongside a property crisis and record youth unemployment in China. Burberry has the weakest price-to-earnings (PE) ratio in the sector, standing at 16 times forward earnings over the next 12 months compared to 22 for other global luxury stocks.
Burberry's profit warning on Monday also impacted investor confidence in its peers, with European luxury groups Hermes and LVMH both experiencing declines of over 1%.
Known for its classic camel, red, and black check print, Burberry plans to reintroduce more familiar offerings to its core customers. As part of its strategy to improve performance in the second half of the year, Burberry will launch a marketing campaign for outerwear in October and invest in enhancing its website. Photo by Ssu, Wikimedia commons.