By  on January 12, 2006

LONDON — Burberry's burgeoning retail network generated some golden dividends in the run-up to Christmas.

Burberry Group plc said in a statement Wednesday that retail sales rose 21 percent to 115 million pounds, or $201.2 million, from 95 million pounds, or $177.3 million, in the third quarter ended Dec. 31.

Total sales for the period rose 4.3 percent to 168 million pounds, or $293.9 million, from 161 million pounds, or $300.5 million, despite a 23 percent decline in wholesale revenue.

All figures have been converted at average exchange rates during the respective periods.

During the period, retail sales accounted for 68 percent of total revenue.

Burberry chief executive Rose Marie Bravo, who will step down this summer, said the engines driving the business in the period were "core outerwear," "reinvigorated classics" and a strong start to the spring season.

Top sellers included shorter trenchcoats, new quilted jacket styles and duffle coats in fresh shades of baby pink and blue. The Haymarket handbag was also another driver of sales.

"The favorable initial response to early spring deliveries across all categories provides a good start to Burberry's 150th year," Bravo said in Wednesday's statement.

In a telephone interview, Burberry's chief financial officer, Stacey Cartwright, said the third-quarter numbers are a result of Burberry's decision to push retail as a core growth strategy.

The statement said Burberry's 12 newly acquired retail locations in Taiwan contributed 5 percentage points to the retail gain. In addition, Burberry opened stores in San Diego and Palm Beach Gardens, Fla., as well as two concessions and three outlet stores worldwide.

Average selling space increased approximately 9 percent in the quarter. The company also opened three franchises in the period, in Bombay, Athens and Dubai.

In the fourth quarter, Burberry will continue with plans to open two more units in Florida: a store in Naples and an outlet in Sawgrass Mills.

Those plans had been postponed by hurricane-related construction delays. "The stores were due to open before Christmas, and would have made a nice contribution to sales in the quarter," Cartwright added.

By region, there were solid gains in the U.S., continental Europe, Hong Kong and South Asia. The statement said the U.K. market — an important one for Burberry — improved "marginally" compared with recent trends, as did South Korea.The third quarter is not usually a strong one for wholesale sales, the company said. Most spring deliveries are concentrated in the fourth quarter.

This third quarter was no exception. Wholesale sales, which accounted for 21 percent of total revenues in the period, fell 23 percent to 36 million pounds, or $63 million, from 47 million pounds, or $87.7 million.

Furthermore, the company said it's expecting a mid- to high-single-digit decline in underlying wholesale sales in the second half. The company will publish its second-half trading update on April 12.

Cartwright said the decline in wholesale sales was to be expected due to the company's ongoing focus on growing its retail operations in Spain and the U.S. In addition, Cartwright said certain customer shipment dates had been altered this season, and the new schedule was having an impact on shipments in the quarter.

"The wholesale sales decline is not a cause for concern. We are transitioning and repositioning the business on a number of fronts," she said. "The third-quarter wholesale figures are also a bit distorted because of the change in delivery dates."

Rhys Williams, an analyst for Seymour Pierce Research in London, said wholesale sales were slightly lower than he expected, although retail came in above expectations. "The total sales outlook is in line with our estimate," he said Wednesday.

Meanwhile, licensing revenue, at 18 million pounds, or $31.5 million, was flat against the corresponding period last year. In Japan, there was a modest increase in licensing revenue due to royalty rate increases.

Global product licenses — for fragrance and watches — also were performing according to expectations. As reported, Burberry has switched to a new eyewear licensee. The new line, to be produced by Luxottica, will be in stores this fall.

While Cartwright declined to provide any forward-looking statements, she did say the U.S. would remain a major focus for Burberry in the next fiscal year, which begins on April 1, and that there are more retail openings in the pipeline.

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