The pressure is building on Burberry boss Christopher Bailey, one of the best paid bosses in Britain, with hedge funds betting hundreds of millions of pounds on the luxury brand enduring a difficult year.
The amount of Burberry shares being shorted - effectively a bet the share price will fall - has risen almost 40% in the last month ahead of the company’s Christmas trading update this week.
Roughly 6.4% of the company’s shares are being shorted by hedge funds - a position worth more than £300m. This means that Burberry is the fifth most shorted company in the FTSE 100 according to figures from Markit.
Burberry will reveal its sales figures for the last three months on Thursday, with analysts at the company’s house broker Bank of America Merrill Lynch (BAML) warning they are likely to be disappointing.
Luxury brands around the world are being affected by an economic slowdown in China, warmer-than-average weather in Europe in the run-up to Christmas, and a drop in tourism in major cities following the Paris terrorist attacks. Chinese shoppers account for roughly 40% of Burberry’s sales, through spending in China and abroad.
The consensus in the City is that Burberry will report a 2% fall in sales in the final three months of 2015 in stores open for more than a year, although BAML has said it could be worse and a string of analysts have downgraded their profit forecasts for the company.
Ashley Wallace at BAML said: “We believe the slowdown in luxury sector earnings growth is structural and that returns have peaked. We continue to see ongoing risk to luxury sector earnings and valuation, of which Burberry is not immune despite its attractive exposure to digital.”
The concerns about Burberry has prompted hedge funds to bet against the company by shorting the shares. Short-selling involves borrowing shares in a company and selling them with a view to buying them back at a lower price. Hedge funds aim to make a profit by banking the difference.
The hedge funds short-selling Burberry shares include Lone Pine, Jericho Capital and AQR Capital.
Shares in the company have already fallen by a third in the last 12 months, putting the focus on Bailey, who is the chief creative officer as well as the chief executive.
Last year Bailey collected a pay package worth £7.9m and was handed more than £9m in Burberry shares.
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