Mars to buy Hotel Chocolat in £534m deal; Burberry hit by luxury spending slowdown – business live

Burberry’s warning that it could miss its revenue target shows that “the shine is dimming on the luxury sector as even higher end consumers tighten their belts”.

So explains Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown, who adds:

Heralded as a more resilient corner of the economy, suggestions of missing targets and lower-end profits aren’t what investors have come to expect and that has consequences for valuations. Specifically for Burberry, it doesn’t have a basket of other brands or products to help diversify risk in this scenario.

The work the group’s done to become a more premium luxury house is to be commended and will improve strength in the long-term, but there’s no getting away from the fact that particularly aspirational, younger shoppers are thinking twice before swiping their cards. There could be further pressure to come before things improve, especially if a broader pull back in spending comes through in 2024 after the glut of festive trading.

The UK’s decision to halt VAT refunds is denting demand in the important UK market, Lund-Yates adds:

The scheme was an important pull to encourage tourist spending and this revenue-cow now has no more to give. The wider European region is seeing an increase in tourist spending overall which is the shift Burberry wanted to see – American and Asian tourists splashing the cash while taking in Europe’s sights is a cornerstone of the business model.

Burberry has done pretty much all it can to place itself in a better position, both operationally and creatively. The issue is that while it’s a slicker and bolder beast, Burberry is currently residing in a hostile environment outside of its control.”

The huge, 170%, premium which Mars is prepared to pay for Hotel Chocolat suggests the stock market had rather undervalued the business.

Retail analyst Nick Bubb says Mars’s move is a ‘shock takeover’, explaining:

Well, Hotel Chocolat has had its problems recently, not least with its Overseas expansion, but even so the disconnect between financial market valuations and takeover valuations shows through in the huge premium that Mars has been willing to pay for the business…

Boom! Hotel Chocolat’s shares have surged by 164% this morning.

They’ve jumped from 139p to 369p in early trading, to just below Mars’s offer of 375p in cash.

Ouch. Shares in Burberry have tumbled almost 10% in early trading, to the bottom of the FTSE 100 leaderboard.

Another UK brand, Burberry, has been hit by a slowdown in luxury spending.

Burberry told shareholders this morning that “the slowdown in luxury demand globally” is having an impact on current trading.

If the weaker demand continues, Burberry says it is unlikely to achieve its revenue guidance for the 2024 financial year, and operating profits would only come in towards the lower end of the current consensus range (£552m-£668m).

Jonathan Akeroyd, Burberry’s chief executive officer, says:

We made good progress against our strategic goals, executing our priorities at pace. We continued to build momentum around our new creative vision with the launch of our Winter 23 collection in September, the first designed by Daniel Lee.

While the macroeconomic environment has become more challenging recently, we are confident in our strategy to realise our potential as the modern British luxury brand, and we remain committed to achieving our medium and long-term targets.”

Burberry has reported a 4% rise in revenues in the six months to the end of September (the first half of its financial year) but a 15% drop in operating profits.

It says sales in mainland China increased 15% in the half, but fell 8% in the second quarter (July-September) “as spending shifted offshore”.

Sales in the Americas fell by 9% in the half – a sign that US consumers may be cutting back.

Burberry says:

While the American customer has remained weak overall, we are pleased with the progress made with our customer acquisition programme with an increased share of higher income female clients.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK chocolatier Hotel Chocolat has agreed to be taken over by food giant Mars in a £534m deal.

The takeover, announced to the stock market this morning, will help Hotel Chocolat expand internationally, the companies say.

And Mars is paying a steep premium to get its prize. It will pay 375p per Hotel Chocolat share, a hefty 170% premium to last night’s closing price of 139p.

Mars, which employs around 10,000 people in the UK, says the deal will bring a “much-loved brand into its portfolio” and deepen its relationships with consumers.

It adds:

The UK has been an important market for Mars, and it expects this to be complemented by the acquisition of Hotel Chocolat, with its distinctive capabilities in product development, luxury gifting and immersive brand experiences.

Hotel Chocolat’s directors say the offer is fair and reasonable, and are recommending shareholders back it (the directors hold about 54% of the stock).

Angus Thirlwell, chief executive officer of Hotel Chocolat, argues that teaming up with Mars makes sense for his company.

Thirlwell says:

We know our brand resonates with consumers overseas, but operational supply chain challenges have held us back. By partnering with Mars, we can grow our international presence much more quickly using their skills, expertise and capabilities.

The pillars on which we have built the Hotel Chocolat brand - originality, authenticity and ethical trading, is precisely what brought Hotel Chocolat and Mars together and our intention is to strengthen and invest behind these. I’m excited about the future of the business and in Mars we have found an excellent long-term steward of the Hotel Chocolat brand and everything we stand for.”

The agenda

• 9.30am BST: Latest realtime economic data on UK economy

• 1.30pm BST: US weekly jobless figures

• 2.15pm BST: US industrial production stats for October

• 3.45pm BST: Bank of England deputy governor Dave Ramsden speaks at the 7th Annual Conference of the European Systemic Risk Board ‘Financial stability challenges ahead: emerging risks and regulation’