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Burberry Posts Loss for Full Year

Discounted sales, restructuring charges ate into profits.

LONDON — Burberry Group plc blasted through the one-billion pound sales milestone in the year ended March 31, but revenue growth failed to halt a slide into the red as a result of lower gross margins, investment in a new cost-efficiency plan, and a series of extraordinary, noncash charges.

The company posted a loss of 5.1 million pounds, or $8.8 million, for the year, compared with a profit of 135.2 million pounds, or $232.5 million, a year earlier. Adjusted profit before taxes fell 12.5 percent to 175 million pounds, or $301 million, from 200 million pounds, or $344 million, due to lower gross margins from sales of discounted stock.

However, sales rose 20.7 percent to 1.2 billion pounds, or $2.06 billion, from 995.4 million pounds, or $1.71 billion, the company said Tuesday. The increase was due to double-digit gains in all product categories and regions; a growth spurt from emerging markets and the London stores, and a 138 million pound, or $65.4 million, bounce from favorable exchange rates.

All figures have been converted at average exchange rates for the period.

Burberry added it has maintained its full-year dividend at 12 pence a share, or 21 cents, and that net cash for the year was 8 million pounds, or $13.8 million, compared with net debt of 64 million pounds, or $110.1 million, a year earlier.

The year’s loss was due mainly to noncash charges related to the restructuring of operations in Spain and elsewhere, and to a 60 million pound, or $103.2 million, cost-efficiency plan that Burberry said will save 50 million pounds, or $86 million, annually starting in the current fiscal year.

The cost-efficiency plan involved charges related to the closure of the underperforming Thomas Burberry line in Spain; layoffs of 800 employees — 15 percent of Burberry’s workforce, and the streamlining of sales, operations and manufacturing facilities to cope with lower demand and inventories.

“We are very pleased about delivering the underlying profit, and our results were bang in line with our guidance to analysts delivered earlier this year,” said Stacey Cartwright, executive vice president and chief financial officer.

Looking ahead, Cartwright said underlying wholesale sales for the first half would likely drop 25 percent, due in part to readjusted inventory levels among stores worldwide.

She also said Burberry was budgeting for “significantly less inventory in its own stores,” but would ensure a dynamic replenishment program was in place in case demand surged. In the current year, the company also plans to add 10 to 12 percent to average selling space — or 10 to 15 new units — with a bias toward Asia and the Americas.

“The good news is that there will be less inventory in the run-up to Christmas, which means less discounting and better gross margins,” Cartwright said.

There was double-digit growth in all regions, product categories and sales channels with the exception of licensing: Sales in the Americas rose 30 percent, Asia-Pacific climbed 29 percent, while Europe, the Middle East and Africa grew 22 percent. Sales in Spain fell 5 percent.

Children’s wear posted a 48 percent spike in sales, followed by nonapparel with a 26 percent rise, and women’s and men’s wear, which each increased 20 percent. Retail sales grew by 30 percent, contributing over half of total revenue for the first time, the company said. New outlets as well as Burberry’s joint venture in the Middle East contributed to the rise.

Cartwright said that in the U.S., sales slowed in the second half, but stores in the major cities performed better than those in secondary markets. She said Burberry continued to grab market share among its wholesale accounts in the U.S. Worldwide, wholesale sales grew 15 percent.

Licensing revenue fell 3 percent in the period, in line with guidance, and due to the planned nonrenewal of men’s wear licenses and weak department store sales. However, Burberry said it was expecting an increase in revenues in the current year, due in part to favorable exchange rates.

Analysts said there were no surprises in Tuesday’s results, and they welcomed the cost-efficiency plan. “Burberry had previously announced it was taking measures to work its way through the crisis. They took the opportunity to adjust their structure, and shut the Thomas Burberry line, which was not good for their image, and a wise decision for the long term,” said Antoine Belge, luxury goods analyst at HSBC in Paris, referring to the classic, youthful line that had found traction only in the Spanish market.