Bloomberg News

Burberry Confident of Weathering Fallout From Debt Crisis

November 16, 2011

(Updates with closing share price in sixth paragraph.)

Nov. 15 (Bloomberg) -- Burberry Group Plc, the U.K.’s largest luxury-goods maker, says it can weather any fallout from Europe’s sovereign-debt crisis by focusing on wealthy clients in cities such as New York and Hong Kong.

Burberry gets more than half of sales in 25 so-called flagship markets including Taipei and London, where large concentrations of high net worth individuals and strong tourist flows will provide shelter in tough times, Chief Executive Officer Angela Ahrendts said today on a conference call.

“Right now, those 25 flagship markets are very strong for us,” the CEO said, adding that the Asia-Pacific region will be the company’s largest this year. “That’s where the investment is going right now and that’s where the team is focusing.”

Burberry confirmed today that it will open as many as 10 stores in the second half, dispelling concern over slowing demand. The 155-year-old company also reported first-half earnings that marginally beat analysts’ estimates as wealthy clients bought more Prorsum coats and dresses. Rivals Hermes International SCA, LVMH Moet Hennessy Louis Vuitton SA and PPR SA all posted quarterly sales that exceeded expectations in the past month, led by growth in Asia.

Burberry knows “exactly what levers to pull should we need to” in the event of slowing demand, Ahrendts said on the call. “We’re focusing on optimizing that momentum” through product design, innovation and service.

Shares Drop

Burberry fell 5.2 percent to 1,347 pence in London as European stocks dropped, paring this year’s gain to 20 percent.

Adjusted pretax profit advanced 26 percent to 161.6 million pounds ($255 million), the company said in a statement. That was higher than the 159 million-pound average of five analyst estimates compiled by Bloomberg. The dividend for the six months ended Sept. 30 was increased 40 percent to 7 pence a share.

“Burberry has excellent strategic growth opportunities in a luxury market with strong long-term growth credentials,” Seymour Pierce analyst Kate Calvert wrote in a note today.

Global spending on personal luxury goods may gain 10 percent in 2011, according to consultant Bain & Co.

While Burberry is confident of “strong brand momentum” in flagship and emerging markets, “we remain mindful of, and prepared to react to, any local or global uncertainties as we drive for long-term sustainable growth,” Ahrendts said.

Wider Margins

Investment in technology and people means Burberry is much better positioned than it was three years ago, Chief Financial Officer Stacey Cartwright said at an analyst presentation.

The first-half gross margin widened to 66.7 percent from 64.3 percent a year earlier, while operating margin improved to 14.9 percent from 14.8 percent, Burberry said. The maker of 2,195-pound “graphic matelassé” trench coats confirmed that it expects a “modest” improvement in full-year operating margin as it boosts capital spending to as much as 200 million pounds.

Net income climbed to 117.2 million pounds from 83.1 million pounds a year earlier, Burberry said. Net cash was 174 million pounds as of Sept. 30, compared with 181 million pounds on the same date in 2010, the 155-year-old company said.

--Editors: Paul Jarvis, Sara Marley

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

To contact the editor responsible for this story: Sara Marley at smarley1@bloomberg.net


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