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Burberry debts more than double to £1.1bn as it hits out at tourist tax

burberry store
burberry store

Burberry’s debt pile has more than doubled over the past year as the British fashion house warned shoppers were shunning its London stores because of Rishi Sunak’s tourist tax.

The British luxury retailer revealed its net debt hit £1.13bn at the end of March, compared to £460m a year earlier.

Burberry said this sharp increase stemmed from lower profitability, as well as its decision to hand £400m to investors last October in a share buyback.

It was viewed as a bid to boost Burberry’s ailing share price, which has fallen 55pc over the past 12 months – making it one of the worst performers in the FTSE 100.

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Burberry chief executive Jonathan Akeroyd said the company was comfortable with its current debt position.

However, he fired a fresh warning at the Government over its refusal to reintroduce tax-free shopping, which he said was behind the lower sales in London.

Mr Akeroyd said: “The UK continues to significantly underperform continental Europe. Obviously, the absence of tax-free shopping is playing a part in that. London is really losing out to Paris and Milan, and the gap is widening.”

He said Burberry’s internal figures indicated that spending by Chinese tourists at its London stores was less than half pre-pandemic levels, whereas it had more than tripled in Paris.

Mr Akeroyd said it was a “shame” that Britain was failing to stem the decline, adding: “Without a scheme, the UK will continue to miss out on obvious post-Brexit benefits.”

The Government had been considering reintroducing VAT-free shopping before the Budget. However, it ultimately held off bringing back the scheme, which was scrapped while Mr Sunak was chancellor.

Burberry boss Jonathan Ackeroyd says London is 'losing out' to other major European cities
Burberry boss Jonathan Akeroyd says London is 'losing out' to other major European cities - Dave Benett/ Getty Images

It has raised concerns that London sales will fall further behind during this summer’s Paris Olympics when millions of tourists are expected to flock to Europe.

Mr Akeroyd’s comments came as Burberry revealed profits fell more than a third in the year to the end of March, slumping to £418m from £657m a year earlier.

Shares slipped more than 5pc on Wednesday, making Burberry the biggest faller on the FTSE 100 despite the retailer having previously warned of a slump in profits.

It follows a torrid period for Burberry, which has been attempting to revive demand for its brand by focusing on its British heritage.

Burberry drafted in Mr Akeroyd, the former boss of Versace, to head up the company in late 2021. It later hired fellow UK citizen Daniel Lee as its creative chief in 2022.

However, while Mr Lee’s collections have been hailed for showcasing Burberry’s strengths in areas such as outerwear, critics have argued that the lines are failing to excite shoppers.

Analysts at Citibank said: “The jury’s still out as to whether Daniel Lee’s brand aesthetics can lead to stronger commercial success and double-digit growth in a polarised demand environment.”

Speaking on Wednesday, Mr Akeroyd said the group was “rebalancing” its offer, adding: “When you launch a new aesthetic, as we did in September, you have to put a marker down. But there are learnings that come from that.”

The rebalancing plans are expected to see Burberry focus more on its classic designs in areas such as menswear.

Bernstein analyst Luca Solca said it was clear that Burberry was “materially underperforming peers and the market”, adding: “No matter the reason, the brand relaunch plan is not working for the moment.”

The pressure on Burberry’s share price has sparked speculation that Burberry could become a takeover target.

Abrdn investment manager Sasha Kachanova said the company’s low valuation could attract buyers: “As the sole British brand of scale operating independently – a rarity in the luxury industry – it boasts a rich heritage and the opportunity to enhance its iconic product lines and accessories.”

Total sales across the brand were down 4pc over the year, with Burberry hit by a spending slowdown in China since the start of 2024.

It said sales in mainland China tumbled 19pc in the three months to the end of March.

Burberry said store sales in its American region were also down 12pc.

Mr Akeroyd said it was not just younger aspirational shoppers cutting back, claiming: “It just seems to be more the luxury sector in general.”

Other luxury giants have similarly been warning over a slowdown in the market, including Gucci owner Kering, which last month said profits would fall by as much as 45pc this year.

Burberry said it expected the market to continue to be tough in the six months to September.

Mr Akeroyd said: “We’re investing in both markets – in China and the US – so I think we’ll see how it evolves.”