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LONDON — Revenues at Burberry rose 23.3 percent to 254 million pounds, or $519.6 million, from 206 million pounds, or $394.6 million, in the third quarter, boosted by growth across all product channels and geographic regions.
Growth drivers in the three months ending Dec. 31 were luxury accessories, including footwear, and outerwear from the Prorsum runway collection. The U.S. and emerging markets continued to fuel sales growth.
In an interview Tuesday, chief financial officer Stacey Cartwright called the quarter’s growth “phenomenal,” but acknowledged there had been some challenges during the period. Retail sales came in “modestly” behind plan due to increased markdowns during the Christmas period, compared with last year.
Also, the Spanish market was weak: Retail sales there declined year-on-year in the quarter, and the company said wholesale revenues are expected to show further weakness.
“Spain is one of the trickiest markets across Europe right now, but not just for us. There are problems with the economy and the housing market. Also, we are positioned there as a better — and not a luxury — brand,” she said.
Investors on the London Exchange keyed in on the weakness in Spain and below-plan holiday sales, sending shares down 16.4 percent to a new 52-week low. During a conference call with analysts early Tuesday, Cartwright said that Burberry was still aiming for full-year, pre-tax profits of 210 million pounds, or $420 million, but that the company would now be “stretching” to meet that target. It was by no means a profit warning, however. She said the stretching would be due chiefly to the markdowns during the holiday season mentioned in the third-quarter trading statement.
Later in the day, one analyst said the market had been “unusually harsh” on Burberry and expected a share price correction later in the week.
The third quarter was a strong one, nonetheless, and Cartwright added that Burberry continues to reaffirm and build on its luxury market position worldwide. Retail revenues rose 12 percent to 161 million pounds, or $329.3 million, from 144 million, or $275.9 million, while wholesale revenues rose 72 percent to 74 million pounds, or $151.3 million, from 43 million pounds, or $82.4 million. All currency conversions were made at average exchange rates for the periods to which they refer.
Wholesale growth, Burberry said, came from new and earlier deliveries, including October gift and spring accessories collections. For the second half, Burberry raised its wholesale growth target to 20 percent from the mid-teens, with nearly half of that growth expected to come from Europe and North America.
Regarding wholesale, the company said it had growing confidence in its ability to deliver on a more timely basis to stores, following the implementation in September of its new IT system for shipping. Burberry is in the throes of overhauling its company-wide IT system.
Licensing revenues remained broadly flat at 19 million pounds, or $38.8 million. The company said the weakness of the yen would likely reduce reported revenues and profits by about 6 million pounds, or $12.3 million, in the full year.
A new fragrance, Burberry The Beat, will be launched during the fourth quarter by Inter Parfums, and Burberry’s new fashion jewelry line will make its debut at retail over the next few months.
In a research report published Tuesday, Melanie Flouquet, an analyst at JP Morgan in London, said the third-quarter results were “better than expected,” with wholesale sales the big positive surprise. Flouquet said, however, that the U.S. market “will unlikely remain buoyant for luxury, even for the less-penetrated European brands.”
Cartwright said that, while Burberry was not immune to macroeconomic conditions or talk of recession in the U.S., the company was upbeat about growth prospects.
“There is growth opportunity for us because there is a huge amount of underpenetration. We are playing catch-up in so many markets,” she said. “We are outperforming our peers and seeing 40 percent growth in our U.S. wholesale accounts; shoes are growing into a major new category, and emerging markets are generating the highest like-for-like sales for us anywhere in the world.”
To wit, Cartwright said the company would be opening 15 to 20 franchised stores in 2009 in emerging markets such as Russia, India, China and the rest of Asia. Hong Kong, Burberry added, remains the strongest market within Asia.