Shares in luxury goods group Burberry (BRBY) slumped more than 15% to 747p, their lowest level in more than a decade, after the firm warned it could make a first-half operating loss if weakness in its core markets persisted.

In its first-quarter trading update covering the three months to the end of June, the company said its performance had been disappointing due to a luxury market which is proving ‘more challenging than expected’.

Sales during the quarter were down by 21% on a like-for-like basis with Asia-Pacific and the Americas, its two key regions, both registering a 23% drop in revenue, while Europe, the Middle East, India and Africa posted a slightly less painful 16% decline.

As a result, the firm warned if the current trend persisted through the second quarter to September it expected to report an operating loss for the first half instead of a profit as previously forecast.

In light of the situation, the board suspended the dividend for the current financial year and promised ‘decisive action to rebalance our offer to be more familiar to Burberry’s core customers whilst delivering relevant newness’.

It added: ‘We expect the actions we are taking, including cost savings, to start to deliver an improvement in our second half and to strengthen our competitive position and underpin long-term growth.’

In addition to pulling the dividend, the firm let go of chief executive Jonathan Akeroyd and appointed industry insider Joshua Schulman in his place with immediate effect.

Schulman was previously chief executive of Jimmy Choo in London before becoming president of Bergdorf Goodman, then chief executive of US luxury brand Coach (now part of Tapestry (TPR:NYSE)) and most recently chief executive of Michael Kors, which is owned by Capri Holdings (CPRI:NYSE).

Morningstar’s senior equity analyst and luxury goods expert Jelena Sokolova described Akeroyd’s departure as ‘not unexpected given the disappointing results’.

‘Burberry’s issues include having raised prices strongly against a weaker industry backdrop and rather weak brand momentum. New hire Schulman may pivot the brand towards a more affordable direction, which some market participants have been calling for,’ added Sokolova.

The UK firm isn’t alone in finding it tough going in the luxury market at the moment. Swiss watch-maker Swatch Group (UHR:SWX) also posted weak first-half sales and earnings sending its shares to a post-pandemic low the same day.

The maker of Omega, Longines and Tissot watches as well as its namesake brand said sales dropped 14% and operating profit fell 70% due to a slump in sales in China, echoing Burberry’s comments. 

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