Despite Slower Growth, Burberry Sees Half Year Sales Gain

Model wearing Burberry’s new Britain watch which premiered worldwide this month.

London—Burberry Group Plc, whose sales have been closely tracked as a bellwether in luxurygoods sales, reported today that its first half year sales increased 6% reflecting slower sales in its second quarter.

For the six months ended Sept. 30, total revenue climbed to 883 million pounds (about $1.41 billion), from 830 million pounds in the prior year. Underlying revenue growth, which is calculated at constant currency rate, was 8%.

Total revenue climbed 11% in the first quarter, but growth slowed to 3% in the second quarter as demand decreased in the United Kingdom and China. Second quarter sales at 475 million pounds missed analysts’ estimate for 477 million and was the worst performance since a 2% drop in the quarter ended March 2010.

Best performing categories were men’s tailoring and men’s accessories with best regions: Hong Kong, France and Germany.

Last month, Burberry said it expects adjusted pre-tax profit for its full year to be around the lower end of market expectations, citing slow growth in retail sales.

Wholesale revenue edged up 2% to 253 million pounds and grew 5% on an underlying basis, in line with guidance. The company expects second-half underlying wholesale revenue to be broadly unchanged.

“Against record prior year comparatives, Burberry delivered 8% total revenue growth and 10% retail growth in the first half, albeit slowing in the second quarter,” said Angela Ahrendts, ceo. “In a more challenging external environment, footfall declined but brand momentum remained strong, particularly with our higher spending luxury consumer.”

Higher End Holds Up, Aspirational Luxury Consumer Pulls Back

During the first half, the company opened 13 mainline stores and closed seven. Average retail selling space increased 12% mostly in Asia Pacific and Europe. In its second half, average retail selling space is planned to increase by about 14%.

Addressing the slowdown in sales, Stacey Cartwright, chief financial officer, told analysts that two more expensive ranges represent 49% of apparel sales, a 6 percentage point gain compared with 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, noting that 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.”

Specifically in China, which has had a boom in watches and jewelry, sales slowed ahead of a once-a-decade leadership transition by the Communist Party later this year, Cartwright noted. Comparable store sales in China during the second quarter were “marginally” positive from being in the “teens” previously, she added, noting there had been a slowdown in gift-giving as well.

Separately, Burberry announced it would directly operate its fragrance and beauty product categories, following the end of its existing license relationship with Interparfums SA. This fragrance and beauty business will be operated as Burberry’s fifth product division alongside accessories and women’s, men’s and children’s apparel.

 

 

 

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