News Column

UPDATE: Burberry First-Quarter Sales Out Muscle Sterling Hit

July 10, 2014

Rowena Harris-Doughty

LONDON (Alliance News) - British luxury fashion retailer Burberry Group PLC Thursday posted a good increase in retail revenue in the first quarter of its financial year, but said the strength of the sterling continues to take a chunk out of its profits.

Burberry shares were atop the FTSE 100 Thursday morning, up 4.2% at 1,478.00 pence.

The demand for Burberry's goods has been driven by much of the same factors of late: travelling "luxury customers", particularly from Asia, buying the retailer's outerwear and large leather goods, such as its iconic trench coats and check-print patterned goods.

This trend continued into the first quarter, with retail sales increasing to GBP370 million in the three months to June 30, up from GBP339 million in the same period the prior year. On an underlying basis, sales grew 17%, but on a reported basis only 9%, hit by the strength of the sterling. Comparable sales growth in the period was 12%.

"If exchange rates remain at current levels, the full impact on reported retail/wholesale profit in financial year 2015 will be material," Burberry said in its statement.

The company said that based on current rates, foreign exchange would wipe around GBP55 million off its retail and wholesale profit for the current financial year. It said it would also wipe around GBP10 million of licensing revenue.

"Right now it will be a GBP65 million hit in total, and will be weighted towards the first half. However, if rates persist, it will get bigger," Chief Financial Officer Carol Fairweather told journalists in a call Thursday, adding that the company's revenue outlook for the year ahead remains unchanged.

Burberry said that while it looks at its product pricing against its peers, it is not looking to reduce its prices to mitigate the currency headwinds.

"We don't expect to make any short-term price changes to mitigate the FX impact. The underlying business still remains strong. We will look at pricing like we always do, on a season by season basis," said Fairweather.

While Burberry continues to go from strength to strength in the Americas and Asia Pacific, driven by sales in mainland China and Kong Kong, Burberry said it has seen sales numbers and transactions softening in Europe, Middle East, India and Africa.

"We have seen a softening in all major markets including London and Paris, with a softening in Eurozone consumers and tourists, including transactions from Russians. However we are still seeing an increase in Chinese transactions," Fairweather told journalists.

In May, Burberry said it will pick up the pace of investment in the current financial year, pumping in around GBP200 million in capital expenditure, focusing on its retail division, new stores, the Japanese market, and its beauty division, which the company brought back in-house last year.

A main focus area in the year ahead are plans to build a growing and profitable business in Japan, a huge market player for the retailer, as the company's Japan wholesale licences expire at the end of June next year.

Burberry has also been strengthening its online business, and increasing conversion both online and in its stores, transforming the company into a "digital luxury brand".

"With great brand momentum and a focused vision, we remain confident of delivering sustainable, profitable growth into the future," said new Chief Executive Officer Christopher Bailey in the company statement Thursday.

Bailey took the reigns as chief executive at the beginning of May, when Angela Ahrendts left the company to join technology giant Apple Inc.

Burberry said it still expects net new retail space to contribute low to mid single-digit percentage growth to retail revenue in the financial year 2015.

The retailer said it will also be ready to begin rolling out its first Burberry skincare range at some point in 2015.

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Source: Alliance News

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