By  on November 17, 2004

LONDON — It’s bonanza time at Burberry.

The British fashion and accessories company reported a 25 percent surge in first-half profits to 52.3 million pounds, or $94.9 million, from 41.9 million pounds, or $67.7 million, in the same period last year and plans for a share buyback worth 250 million pounds, or $463 million, aimed at returning excess cash to shareholders.

In a separate announcement Tuesday, the company said Brian Blake, worldwide president and chief operating officer, has been named an executive director of the company. He will join Rose Marie Bravo, chief executive officer, and Stacey Cartwright, chief financial officer, on the board immediately.

Profits in the six months ended Sept. 30 increased on the back of an 8 percent surge in sales, as reported last month, to 347.5 million pounds, or $630.4 million, from 321.3 million pounds, or $518.9 million, and a rise in gross profit to 58.6 percent from 55.6 percent. Dollar figures have been converted at the average exchange rate.

Reduced end-of-season sales activity and markdowns, sourcing and pricing gains and an increase in licensing income boosted the gross profit rise. The figure beat most analysts’ expectations.

“We had a really good first half — good growth, very few markdowns and strong sell-through for the spring 2004 collections,” said Cartwright in a telephone interview. She said fall had a slower start, however, mostly due to the temperate weather in both the U.S. and Europe. “We’ve had a slow start to winter. Ponchos, on the other hand, have been flying out the door,” said Cartwright.

Diluted earnings per share before goodwill amortization and exceptional gains increased 20 percent to 10.8 pence, or 20 cents, while the interim dividend increased 33 percent to 2 pence, or 4 cents.

By product category, women’s wear was still the biggest with sales rising 10.7 percent to 118.5 million pounds, or $214.9 million, from 107 million pounds, or $194.1 million. Men’s wear sales rose 0.8 percent to 95.1 million pounds, or $172.5 million, from 94.3 million pounds, or $152.3 million.

Accessories and children’s wear gained 6.9 percent to 93.3 million pounds, or $169.3 million, from 87.3 million pounds, or $141 million, driven by new products, small leather goods — and ponchos, the company said in Tuesday’s statement. Accessories accounted for 25 percent of revenue in the period, excluding children’s wear.The company also announced it was renewing selected nonapparel licenses in Japan, including home products, custom shirts and golf accessories.

The renewals are expected to include phased increases in royalty rates and marketing commitments. The company also said it planned to enter into short-term license extensions for ties, leather goods and related accessories. The company said it simply wanted to remain flexible as it considers its options for these categories in the future.

Regarding short-term licenses, Cartwright said Burberry is buying some time in Japan. “We have a new team on the ground in Japan and they are looking at what the optimum approaches might be. You have to get the product assortment right, and for now the short-term licenses work for us,” she said.

Meanwhile, the company said it’s on schedule to open a minimum of four stores and concessions in the second half, resulting in a 7 percent increase in total selling square footage for the year.

As reported, Burberry is expecting mid- to high-single-digit wholesale sales growth for the spring 2005 season and licensing revenue in line with the first half. Cartwright added the company was looking closely at the merchandise mix for spring 2005, ensuring there was the right amount of newness and freshness.

“We have to make sure there are enough new classics coming through, and get more capsule collections into the stores on a regular basis. It’s about more new, now,” she said.

Meanwhile, Cartwright said the company decided on the share buyback due to strong performance and cash flow generation since the initial public offering and future prospects. The program will restore excess capital to shareholders and allow Burberry to operate with a more efficient capital structure.

“At the moment, I’m sitting on just under 150 million pounds [or $278 million] in cash. Burberry can run with a cash-neutral balance sheet, so we thought, ‘Why not make better use of the money?’” Cartwright said, adding that the cash will be used to buy about 250 million pounds, or $462 million, worth of shares by March 2006.

The shares will then be canceled, which means that future earnings will be spread over a smaller number of shares. The statement stressed that a special mechanism would be put in place in order to allow Great Universal Stores to maintain its 66 percent stake in Burberry.Rupert Trotter, an analyst with Isis Asset Management, added the buyback scheme demonstrates Burberry’s high degree of confidence in its future cash flow. “It will underpin the stock, and also signals to me there are no significant acquisitions on the horizon in the short term,” he said. The company plans to release a third-quarter trading statement on January 12 and a second-half trading update in April.

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