Burberry Q1 Sales Miss Raises Concern in Luxurygoods Sector

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Burberry's Fall/Winter 2012 ad campaign

London—Concern over a slowdown in the luxurygoods market increased today when Burberry Group reported a sales gain that missed analysts’ average estimate for the second quarter in a row.

For the quarter ended June 30, Burberry said net sales were up 11% to 408 million pounds ($634 million) missing analysts’ estimates for 417.8 million pounds. Excluding currency fluctuations, revenue also rose 11%, which was below Burberry’s 15% and 21% increases in the previous two quarters.

The report helped send stock prices down on other European luxurygoods companies including LVMH, PPR and Richemont.

“There is a slowdown in the broader global economy and as luxury is cyclical, this slowdown is starting to appear in the luxurygoods quarterly reports,” said Luca Solca, global head of European equities at CA Cheuvreux.

Nonetheless, Angela Ahrendts, Burberry’s ceo said, ”With continued brand momentum, Burberry has delivered a robust first quarter. Revenue was up 11% against a more challenging external environment. Sales in retail, now about 70% of the business, increased by 14%, with initiatives to elevate brand equity balanced by improved store productivity and new space.”

Sales at Burberry’s retail division rose 14% to 280 million pounds with comparable store sales up 6%. In its mainline stores, average retails increases thanks to new products, expanded Burberry Prorsum offerings and core outerwear and accessories.

Still on Track to Hit Full Year Profit Goals

In mainline, average selling prices increased, driven by product innovation, higher penetration of Burberry Prorsum and London and rationalization of opening price point products in core outerwear and accessories.

Burberry’s wholesale division reported an 18% in Asia-Pacific and 16% in Europe. The Americas’ 2% increase was offset by planned closure of some wholesale accounts. Sales in the rest of the world were up 9%.

In licensing, revenue edged down 2% to 26 million pounds due to closure of some licenses, the company said.

Despite a slowdown in its sales, Burberry maintained its full year forecast for a pretax profit of about 440 million pounds. According to Stacey Cartwright, chief financial officer, “We focus on what we can control and our message to our teams is very much to ensure that we continue to outperform irrespective of political change in the U.S., the Middle East and China or ‘uncertainties’ in Europe.”

Burberry also continued to expand its mainline stores in key markets, opening six during the quarter, including the fourth store in Brazil and Russell Street in Hong Kong. Other mainlines store openings this year are scheduled in London, Milan, Chicago, Hong Kong and Shanghai.

Despite what may be a slowing of its economy, Cartwright said China remains “an enormous amount of opportunity” with potential stores rising from the current 63 to as many as 100.