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Burberry Advances Most in Three Years as Sales Bring Relief

October 11, 2012

Burberry Shares Gain Most in Four Months as Sales Bring Relief

Burberry Group Plc today increased its forecasts for the retail and wholesale operating margin in the first half to be “at least in line” with last year, rather than lower as previously guided. Photographer: Simon Dawson/Bloomberg

Burberry Group Plc, (BRBY) the U.K.’s largest luxury-goods maker, rose the most in three years in London trading after reporting a partial recovery in retail sales growth since September’s profit warning.

The shares gained as much as 9.2 percent to 1,095 pence, the steepest advance since April 2009.

Sales at stores open at least a year rose 1 percent in the second quarter, London-based Burberry said today in a statement. That’s an improvement on the unchanged performance it reported on Sept. 11 for the first 10 weeks of the period. The retailer also increased its guidance for the second-half retail and wholesale operating margin. The profit measure will be in-line with last year, according to Burberry, which had previously predicted a decline.

“This improvement should bring some relief,” said Rodolphe Ozun, an analyst at Bank of America Merrill Lynch with a neutral recommendation. “Trends suggest the second half should remain challenging.”

The shares were up 9 percent as of 9:46 a.m., paring the decline for the year to 7.9 percent.

Prorsum, London

The higher-priced Burberry Prorsum and London ranges outperformed in the second quarter compared with the entry- priced Burberry Brit range even as shopper numbers slowed, Chief Financial Officer Stacey Cartwright told reporters. The two more expensive ranges represent 49 percent of apparel sales, a 6 percentage-point gain compared to last year.

“We’re seeing more business at the higher end, we do feel it is the aspirational luxury consumer who is more impacted against the current macro backdrop,” Cartwright said. She blamed the slowdown in sales on lower footfall “which suggests to us part of the slowdown is macro-related” given the debt crisis in Europe, upcoming Chinese elections and a slowdown in luxury travel.

“The fact that underlying retail growth has not further deteriorated since the profit warning is reassuring,” William Hutchings, a Goldman Sachs analyst, wrote in a note.

Burberry said last month that pretax profit for the year ending March would be at the lower end of a range of 407 million pounds ($652 million) to 454 million pounds, citing slowing same-store sales. The company today said second-half underlying wholesale revenue will be little changed.

Damaged Brand?

“We expect the retail like-for-like beat will offset disappointments elsewhere,” said Bethany Hocking, an analyst at Investec who downgraded her recommendation to hold last month. “We do not ascribe to the view that the brand is damaged.”

Revenue in the three months ended Sept. 30 rose 3 percent to 475 million pounds, the company also said today. That was the worst performance since a 2 percent drop in the quarter ended March 2010 and compared with the 477 million-pound median of five analysts’ estimates.

“In a more challenging external environment, footfall declined but brand momentum remained strong, particularly with our higher spending luxury consumer,” Burberry Chief Executive Officer Angela Ahrendts said in the statement.

In China, where a boom in demand for watches and jewelry has spurred sales gains for luxury companies, revenue has slowed ahead of a once-a-decade leadership transition by the Communist Party later this year, Cartwright has said. The executive said Chinese same-store sales in the second-quarter were “marginally” positive from being in the “teens” previously. There has also been a slowdown in gift-giving.

“I don’t think we can call at what point the brakes come off,” in China, she said, adding Burberry is planning conservatively there.

Burberry announced separately that it will directly operate fragrance and beauty as its new fifth product division from April 2013 as it ends its license relationship with Interparfums SA. (ITP) The move will help it take “greater control over our brand,” Ahrendts said.

To contact the reporters on this story: Sarah Shannon in London at sshannon4@bloomberg.net; 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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