By  on July 10, 2014

PARIS — The currency grinch has struck again.

Increasing headwinds from foreign exchange rates forced Burberry Group plc to lower its full-year profit guidance, somewhat overshadowing a 12 percent gain in same-store sales in its fiscal first quarter that analysts touted as a strong beat.

“We believe this will be the best soft luxury performance in the quarter,” Barclays Equity Research said, with Burberry considered the first big European player to report revenues for the three months ended June 30.

“Burberry remains one of the very few luxury companies to continue to enjoy double-digit revenue growth,” echoed Citi analyst Thomas Chauvet.

The company recorded a 9 percent jump in revenue to 370 million pounds, or $622.5 million at average exchange rates. Stripping out the impact of exchange rates, the sales gain stood at 17 percent.

But it warned that if the British pound remains as strong as it is today, reported retail and wholesale profit would be reduced by about 55 million pounds, or $93.7 million at current exchange, and that the adjusted operating margin would fall from 17.5 percent to about 16 percent. Burberry’s fiscal year ends on March 31, 2015.

During a conference call, chief financial officer Carol Fairweather said there was little the company could do vis-à-vis exchange rates beyond hedging where it can.

“We’re a luxury brand, and we need to source appropriately,” she said, responding to a question about possible offsets, including changing production sites.

Fairweather also ruled out price increases, while allowing that the company is monitoring competitors closely and “we tend to be a fast follower.

“We’re controlling what we can control. We won’t change our key strategies, and continue to focus on the underlying strength of the business,” she stressed.

Fairweather noted travel retail would be a focus going forward, with an opening in Hong Kong and relocation at London’s Heathrow Airport among Burberry’s next moves.

“We see this as an opportunity for us,” Fairweather said, while declining to say how many of the 20 to 25 stores planned for fiscal 2015 would be in this channel.

Burberry trumpeted double-digit growth in Asia Pacific and the Americas in the quarter. Reflecting weaker economies elsewhere on the globe, Europe, the Middle East, India and Africa registered low-single-digit growth.

Fairweather cited lower tourist traffic among Russians and mainland Europeans, but no slowdown among Chinese, and asserted that Burberry’s digital focus gives it a “point of difference” in the market, particularly among young consumers.

Mainland China and Hong Kong registered double-digit growth in the quarter, with Southeast Asia “more challenging,” Fairweather noted.

Burberry now offers a click-and-collect service in 131 stores, and iPad sales in-store represent a quarter of all digital sales.

“Digital continues to outperform,” Fairweather said. “The U.S. in particular is a market where digital punches above its weight.”

She said consumers there are particularly “channel agnostic” and said its “customer service through digital” represents a strong differentiator.

The company cited a double-digit pace across men’s, women’s and accessories, notably large bags in solid leathers.

Fairweather noted Burberry recently trialed a more focused offering of its iconic, made-in-Britan trenchcoats — a choice of three styles, three colors and three lengths — in 30 stores, and it has “resonated very well with our consumers.” The company plans to roll out the merchandising strategy to its entire network of directly owned stores.

Burberry’s results came ahead of the company’s annual general meeting today, where it is likely to hear shareholder discontent over the pay package for Christopher Bailey, Burberry’s chief creative officer who also took on the role chief executive officer last May following the exit of Angela Ahrendts, who left the company to become head of retail at Apple Inc.

Fairweather skirted questions about the revolt, insisting the AGM was the proper forum.

Bailey could earn up to 8.1 million pounds, or $13.8 million, per year, including a cash allowance of 440,000 pounds, or $749,215, according to the company.

He also received a golden hello in the form of shares worth up to 7.6 million pounds, or $12.9 million. The shares packet is linked to the company’s performance.

Bailey’s base salary is 1.1 million pounds, or $1.9 million, and he will also receive a cash bonus, share awards and pension contributions.

To access this article, click here to subscribe or to log in.

To Read the Full Article
SUBSCRIBE NOW

Tap into our Global Network

Of Industry Leaders and Designers

load comments
blog comments powered by Disqus