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Burberry Retail Sales Climb

While retail sales notched double-digit growth in the crucial third quarter, sales on the shop floor remain soft.

LONDON — Burberry Group plc’s retail sales may have easily outstripped analysts’ estimates in the crucial third quarter, but sales on the shop floor remain soft.

Burberry said in its third-quarter trading update Tuesday that retail sales in the three months to Dec. 31 climbed 11.3 percent to 464 million pounds, or $747 million. Calculated at constant exchange rates, retail growth was 13 percent, with a 6 percent rise coming from same-store sales, and the balance from new stores.

All figures have been converted at average exchange rates for the three months to Dec. 31.

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Outerwear contributed about half of the growth, with the brand’s highest-end lines, Prorsum and London, generating a bigger part of overall sales. Scarves, men’s tailoring, and accessories outperformed.

Burberry said that in its mainline stores “higher-priced styles” remained a key driver of revenue growth, and digital commerce, an area where the company continues to innovate, outperformed.

However, everyday shoppers are staying away from the stores. During a conference call on Tuesday, the company’s chief financial officer, Stacey Cartwright, said the macroeconomic situation is weighing on customer sentiment.

“The aspirational customer is venturing out less than before, while the higher-end customer is coming into the store, and buying at higher price points. Like-for-like retail sales were still up 6 percent, and the penetration of Prorsum and London increased by 5 percentage points year-on-year,” she said.

A quarter of Burberry’s watch sales now come from The Britain, a high-end watch for men and women that launched in the fall. It costs more than double the average price of Burberry’s more mainstream watches by Fossil.

And while retail sales may have beat analysts’ estimates, wholesale sales fell short of their expectations.

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Wholesale revenue declined 7.7 percent to 120 million pounds, or $193.2 million, dented partly by lower sales to small, specialty accounts in Europe. As a result, Burberry has amended its wholesale guidance for the second half, and now expects underlying wholesale revenue to be down a “low to midsingle-digit percentage year-on-year.” The company had previously said it would be broadly unchanged.

Cartwright said the company continues to rationalize the speciality store accounts in Europe that are no longer in line with the high-end positioning of the brand, while the U.S., Asia travel retail and emerging markets are expected to continue to grow.

Analysts were upbeat about the numbers. “Overall, these results should reassure and improve sentiment after last September’s blip in trading when Burberry was affected by the industry slowdown rather than anything company specific,” wrote Kate Calvert, an analyst at Seymour Pierce. “We still consider Burberry a strong, long-term growth story with significant geographical and product-mix opportunities.”

Bethany Hocking at Investec said: “The company remains cautious and points to volatile trading and weak footfall, but nevertheless Burberry had a better Christmas than expected.”

By geographic region, Asia-Pacific was the growth leader: revenue climbed 15 percent, led by Hong Kong and Mainland China, and by 1.4 percent in the Americas. Growth in Europe was flat, while growth in the rest of the world advanced 10.3 percent.

Overall, third-quarter revenue advanced 6.8 percent to 613 million pounds, or $986.9 million, in what company chief Angela Ahrendts described as a “difficult quarter.” Growth at constant exchange rates was 9 percent. By comparison, revenue growth in the second quarter of Burberry’s 2012-13 fiscal year was 2.6 percent, while in the first it was 11.2 percent.

In the trading statement, Ahrendts said the company witnessed a “particularly strong” week in the run up to Christmas — driven partly by men’s accessories — although the quarter was a difficult one. “We expect the external global environment to remain challenging, but see continued opportunities to drive productivity in our existing business, while investing for growth in underpenetrated regions, product categories, channels and mediums,” she said.

Burberry said that for the second half, average retail selling space is on plan to increase by about 14 percent, biased toward flagship markets in Asia-Pacific and Europe.

The company also said its plans to take its fragrance and beauty division in-house are on track, and it will directly operate that division from April 1.

It said the transition is on plan, with Burberry starting to oversee product development, sourcing and logistics, while partnering with existing distributors worldwide. Burberry paid 181 million euros, or $237.1 million, in cash to Inter Parfums SA last month for the ending of the license relationship.