Burberry Surprises With Strong Q4 Sales

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Spring looks from Burberry

Spring looks from Burberry

London—In a quarterly performance that analysts say outdid its rivals, Burberry Group Plc today reported its fourth quarter sales exceeded estimates thanks to sales of its more expensive products in China and Hong Kong.

For the quarter ended March 31, the British luxurygoods brand said sales rose 11% to 503 million pounds (about $772 million). That was ahead of analysts’ estimate for 485.1 million pounds.

Combined with its better-than-expected third quarter, which included holiday, Burberry’s total revenue for the six months ended March 31 rose 9% to 1.116 billion pounds compared to 1.027 billion pounds a year ago. Sales in Asia-Pacific region lead sales growth with double-digit increases especially in handbags and the company’s higher-end merchandise. The Americas saw low single-digit growth and Europe was “broadly unchanged.”

The growth in China was greeted with promise by analysts who still recoiled at Burberry’s warnings from last September about a global luxurygoods slowdown especially in China. On top of that LVMH reported Monday a slowdown in sales of its fashion and leathergoods to levels not seen since 2009.

Commenting on Burberry’s growth, John Guy, analyst with Berenberg Bank, said: “To continue to run at a double-digit growth rate in China and Hong Kong is a very good performance.”

Burberry’s retail sales, which now account for about 75% of total revenue, rose 13% to 376 million pounds during the fourth quarter, offsetting a fewer number of shoppers. Comparable store sales rose 7% and Burberry expects net new store opening to add low- to mid-single digit increases for its fiscal year.

Aspirational Customer Holding Back?

Burberry’s wholesale revenue fell 3% during the last six months due to the weakened European market where tourist business has been on the wane. Excluding beauty, Burberry forecast underlying wholesale revenue to decline about 10% in the next six month ending Sept. 30.

“With three-quarters of our revenue now generated in retail, we are pleased with the 13% growth in this channel in the second half, driven by continued innovation in product, marketing and customer service, especially over Christmas and Chinese New Year,” said Angela Ahrendts, chief executive.

She said she expects the global economic environment to remain “challenging” but said Burberry was aiming to make the most of “significant opportunities that exist for the brand across geographies and product divisions, with particular emphasis on unlocking the potential of our digital platform and our newly-integrated fragrance and beauty business”.

Burberry plans to expand its retail operations, opening 25 mainline stores and closing about 15, plus adding 10 new concessions and closing about the same number by March 2014.

Licensing revenue in the second half increased 3% on an underlying basis to 109 million pounds. Global product licenses delivered strong double-digit growth with launches in the half including the new Britain watch, Splash sunglasses and Body Tender fragrance.

It also plans to increase its offerings in the upper end as the aspirational consumer is holding back on spending in the current economic climate, Stacey Cartwright, chief financial officer, said during a conference call with analysts.

“Burberry continues to execute well, driving improved conversion, further elevating the brand and improving average unit retail selling prices,” said analysts at Nomura.


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