Burberry Takes Advantage of Currency Changes as Sales Rise 9%

In What's New, Industry News by Jeff Prine

Sunglasses from The Gabardine Collection, inspired by Burberry's trench coat fabric

Sunglasses from The Gabardine Collection, inspired by Burberry’s trench coat fabric

London—Thanks to pricing adjustments to counteract the effects of currency fluctuations and strong sales of its raincoats and ponchos, Burberry reported Wednesday that its second half sales rose 9%–boosted by double-digit growth in the Americas, Europe the Middle East, India and Africa.

For the six months ended March 31, Burberry posted a hike to 1.4 billion pounds (about $2.11 billion). The luxury brand’s retail sales were up 14% (13% excluding foreign exchange impacts).

Wholesale revenue, which includes sales to department stores, travel retail and franchisees at constant exchange rates, was flat on an adjusted basis at 331 million pounds. Beauty sales were up 8% on the same basis. Meanwhile, licensing revenue from Burberry’s Japanese licensees, eyewear, watches and the European wholesale children’s license, was up 3% on an adjusted basis to 33 million pounds.

The increases seemed to vindicate CEO Christopher Bailey, Burberry’s former chief designer who took over his role last year from Angela Ahrendts. Some shareholders complained about his reported 27 million pound pay package, a salary that the brand claims is in line with other top executives.

Prices Cut in China

Chief Financial Officer Carol Fairweather said Burberry strives to maintain its pricing position in each market and manages its pricing in line with that of immediate peers. “As prices move we would also move prices up or down,” she said. She declined to say whether or by how much the company has already cut prices in China.

Lewis Sturdy of London Capital Group said Bailey “may yet be proving his detractors wrong”, as Burberry “gains growth from the more mature markets of Europe and the US to offset weakness in parts of Asia”.

Burberry’s sales in China and Korea grew slightly, while those Hong Kong continued to decline due to 2014’s political protests.

“We anticipate external challenges will continue in the current year, but remain confident in our long-term strategy to build the Burberry brand and business globally,” Bailey said.

Burberry, too, joined with other luxurygoods leaders in raising prices and also benefiting from favorable exchange rates. Burberry predicted that if rates do not change, its 2016 profits would be boosted by about 50 million pounds.

Luxurygoods prices have moved upward in some regions due to the rise of the U.S. dollar, the weakness of the euro and the surge in the Swiss franc.

“We will maintain our price positioning by market relative to our immediate peers … as prices move, we would also move prices up or down in the same way,” Fairweather told analysts in a conference call.

Louis Vuitton had raised prices in Europe by 3% to 4% since the beginning of the year. Currency changes have created price differentials, some even reaching more than 50% for the same luxury item between European and the largest Chinese cities.

Burberry also reported that its comp store revenue in Hong Kong, where it made about 10% of sales and where tourists make up 80% of the customer base, fell in “single-digit” terms in the second half.

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