Bloomberg News

Burberry Beats Sales Estimates and Plans Store Expansion

October 12, 2011

(Updates with analyst’s comment in fourth paragraph, shares in fifth, CFO’s comments in eighth.)

Oct. 12 (Bloomberg) -- Burberry Group Plc, the U.K.’s largest luxury-goods maker, reported fiscal second-quarter sales that beat analysts’ estimates and dispelled concern over slowing demand with plans to add 15 percent to its average retail space.

Revenue in the three months ended Sept. 30 rose to 463 million pounds ($722 million) from 382 million pounds a year earlier, the London-based company said today. The average of 11 estimates compiled by Bloomberg was 447.8 million pounds.

Burberry said it plans to open as many as 10 stores in the second half of the fiscal year, including outlets in China, Latin America and Paris. Concern that economic growth in China, the industry’s fastest-expanding market, may be stagnating has led to declines in European luxury-goods stocks since July. Burberry’s first-half sales in Asia-Pacific rose 52 percent.

The “extremely strong” revenue growth “confirms more or less what other companies have been saying: There are no signs of slowing demand,” said Davide Luigi Vimercati, an analyst at Unicredit in Milan. “The read across for the sector is positive,” said Vimercati, who advises buying Burberry shares.

Burberry rose as much as 59 pence, or 4.7 percent, to 1,323 pence in London trading, and was at 1,301 pence at 10:28 a.m., gaining for a seventh day. The shares have fallen 9.5 percent in the last three months, giving the maker of 3,995-pound cashmere and wool trench coats a market value of 5.7 billion pounds.

New Stores

Retailing revenue at the 155-year-old British company rose 44 percent in the quarter, boosted by last year’s acquisition of its operations in China and sales of outerwear and large leather-goods. Comparable stores sales climbed 16 percent, with the strongest growth in so-called flagship markets including New York, San Francisco, London, Paris, Hong Kong, Tapei and Dubai.

Wholesaling revenue climbed 10 percent. Excluding China, third-party sales climbed 20 percent on an underlying basis in the first half, beating the company’s July forecast of a “high- teen” percentage gain. Licensing revenue advanced 12 percent.

Burberry sees no sign of a slowdown in any of its markets, Chief Financial Officer Stacey Cartwright said today on a call with journalists. Even so, the company, which is better positioned for a slowdown than it was in 2008, is preparing contingency plans should demand weaken, she said.

A shift from wholesaling toward retail will continue in the second half with the conversion of five Saudi Arabian stores and Spanish men’s wear moving to a concession model, Burberry said. Against a period of tougher comparatives, the luxury-goods maker said it expects wholesale revenue to increase by a mid single- digit percentage at constant exchange rates in the second half.

Margin Outlook

Reported licensing revenue is still expected to increase by about 10 percent in the full year, Burberry said.

Burberry confirmed it expects a “modest” increase in full-year profit margins as it boosts capital spending to as much as 200 million pounds. The company, whose “Beads, Weaves, Parkas and Prints” spring-summer 2012 fashion show in London featured sheath-knit skirts and woven-wedge sandals, is investing in new technology and stores as demand grows.

--Editors: Paul Jarvis, Robert Valpuesta.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net.


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