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LONDON — Burberry Group plc said Thursday that net profits rose 3.6 percent to 110.2 million pounds, or $208.6 million, in the year ended March 31 as costs associated with its IT and supply chain initiative continued to take a bite out of bottom line growth.
The profit figure compares with income of 106.4 million pounds, or $190 million, in the previous year. Sales rose 14 percent to 850.3 million pounds, or $1.61 billion, from 742.9 million pounds, or $1.33 billion, with growth across all product categories, geographic regions and sales channels.
Discussing the results at a press conference, chief financial officer Stacey Cartwright said 2006-2007 was the “peak year” for spending on the IT and supply chain program, called Project Atlas. Investment last year totaled 21.6 million pounds, or $40.9 million. Currency conversions were made at average exchange rates for the respective periods.
Project Atlas aims to transform Burberry’s IT platform and operational efficiency. In the current fiscal year, costs will fall to 15 million pounds, or $28.4 million, Cartwright said.
Burberry chief executive Angela Ahrendts called the year “outstanding,” and one of the best the company has had in five years. “Over the past year, we advanced the luxury component of the brand, accelerated retail expansion and continued to evolve the operating model,” said Ahrendts, who took over as ceo last July. “We face the current year with confidence.”
While many U.K. companies are bracing for a slowdown in sales growth as interest rates rise and consumers become more wary, Cartwright said Burberry was undaunted.
“There is nothing giving us concern right now. We have a very broad market positioning around the world, which should [enable] us to absorb any shocks,” she said.
Andrew Wade, a retail equities analyst at Seymour Pierce in London, said Thursday’s results were just what he was expecting. “They were very good; the company is making very positive steps to increase back office efficiencies, improve brand cohesion, reduce stockkeeping units and encourage customers up the price architecture. The steps are sensible and delivering top-line growth,” he said.
In the current fiscal year, the company said it was planning a 13 percent increase in average retail selling space, with the majority of openings concentrated in the U.S. and Europe.
Underlying wholesale growth in the first half is expected to be in the mid-teens, while licensing revenue is expected to be broadly flat, due in part to the weak yen and to some decreases in licensed product categoriesAhrendts added the company was still focused on tightening its product offer and getting it to market at a more rapid pace.
She said outerwear continues to be a key category: “It’s still 40 percent of the business, and we want to dominate and innovate in that category. After all, Burberry was born from a coat. It’s in our DNA.”
She added the surge in accessories, where sales grew 12 percent last year, has been helping the business all around. “Accessories sales are having a halo effect on ready-to-wear sales,” she said. “Accessories are drawing a new customer into the store, and that customer is buying clothing.”
All geographic regions posted double-digit growth, with Europe — excluding Spain — generating a 20 percent rise in the financial year. North America posted the slowest growth of all the regions, 11 percent, but the company said performance was strong and the plan is to accelerate expansion in underpenetrated markets.
Burberry opened a smaller, new-format store carrying outerwear and accessories in Tampa, Fla., earlier this month, with other smaller units set to follow in Los Angeles and Copley Square in Boston.
Six more stores are opening in the U.S., in Austin, Tex.; at the Beverly Centre in L.A.; Palo Alto, Calif.; Natick, Mass.; Boston, and the Venetian Palazzo in Las Vegas. Burberry will be doubling the square footage of its Short Hills, N.J., store in the fall.
Ahrendts said she is also proud of the company’s wholesale sales progress in the U.S. She had just returned from a quick trip to Seattle, where Nordstrom honored Burberry as its Partner in Excellence at the American company’s latest shareholder meeting.
“The Burberry business is up 57 percent at Nordstrom, and we were chosen from among Nordstrom’s 3,200 suppliers,” said Ahrendts. “We have a retail mind-set, but we’re finding that it’s even benefiting our wholesale business.”