Appeared In
Special Issue
Men'sWeek issue 10/13/2011

LONDON — Burberry’s plans to roll out stores in China and worldwide are on track as the company reported a 29.5 percent increase in first-half revenues to 830 million pounds, or $1.34 billion, and a 21 percent rise in second quarter revenues to 463 million pounds, or $745.4 million.

This story first appeared in the October 13, 2011 issue of WWD. Subscribe Today.

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

The company said Wednesday in a trading update that capital expenditure would remain at 180 million to 200 million pounds, or $283 million to $314 million, for the year, with a net eight to 10 mainline stores set to open in China, Latin America and Paris. Average retail selling space will increase by about 15 percent in the second half.

Burberry shares, which are down more than 20 percent from their peak at the end of July, gained 3.5 percent in London to 1,308 pence, or $20.44 at current exchange.

Despite European banks’ recent reports of a “hard landing” in China if there is another global recession, Burberry remains bullish on the country’s prospects.

“From today’s numbers you can see there has been no slowdown at all,” said Stacey Cartwright, executive vice president, chief financial officer. “It’s steady as she goes, and we will continue to open more stores in the region. We have no intention of slowing down.”

Comparable-store sales growth in China was 30 percent, and the country’s retail outlets kicked in 14 percent of the 45 percent underlying growth in retail sales. Cartwright said that China now accounts for around 10 percent of Burberry’s overall business.

She said business is so robust in Asia overall that even with a slowdown in demand, Burberry would still meet its internal targets for return on investment in the region’s stores.

In the half, Asia-Pacific was the top performer by region, with sales growth of 51 percent. Europe grew 23 percent, while the Americas rose 20 percent, and the rest of the world category increased 31 percent.

Sales drivers in the half continued to be the core outerwear collections and large leather goods, with Burberry London also adding fuel to growth. Wholesale sales rose 9.7 percent in the six months, driven by footwear, children’s wear and men’s tailoring and accessories.

While Cartwright remains bullish on China, she said the company was mindful of the macro economy, and prepared for a slowdown in certain markets.

“It’s not the first time we’ve been here and we are in a better position than we were three years ago,” she said. “Today, we have our SAP [information technology] systems and proper processes in place,” she said. “Last time, we cut costs out of the business, but nothing from the front end, nothing the consumer could see. We’re being very responsible in the way in which we manage the business, and we’re making sure our regions are totally up to speed, thinking about travel costs and head counts.”

Analysts were bullish on the company’s prospects. On Wednesday Seymour Pierce maintained its “buy” recommendation on the stock and said in a report: “Burberry’s long-term growth story remains intact, operating in a market with strong long-term growth credentials and with significant geographical and product mix opportunities plus operational leverage to come. The balance sheet remains very strong.”

In a report called “Burberry — Luxury Slowdown, What Slowdown?” analyst Thomas Chauvet at Citigroup Global Markets in London argued that the company is far stronger now than it was three years ago. “Burberry is a much more robust company today. It is more exposed to emerging markets and structural emerging market tourist flows, has greater control over its brand globally, and benefits from a much more efficient supply chain and a greater proportion of carryover and replenishment styles carrying low fashion risk,” he said.

He added a note of caution, however, saying there was “low visibility” into Christmas and luxury demand could slowly deteriorate as the months pass.

“It is too early for luxury demand to be materially affected by recent equity market dislocation and deterioration in economic conditions. In 2008 an abrupt shock — the collapse of Lehman Brothers in September — acted as a catalyst for the consumer to turn defensive and luxury demand to move into strong negative territory.

“In the absence of such a shock, we expect a gradual, rather than severe, deterioration in demand patterns in coming quarters in developed markets. The health in global tourist flows to Europe and the U.S. is likely to continue to be supportive,” he said.