Burberry Prorsum

Burberry's eye on the bottom line paid off, with profits rising 18 percent to $203 million for the year due to cost and price controls and sourcing gains.

LONDON — Burberry has been keeping a close eye on the bottom line, and the company’s efforts are paying off.

Even as it expressed a cautious outlook for the current year, Burberry reported on Tuesday that profits for the fiscal year ending March 31 rose 18.2 percent to $202.9 million, or 109.9 million pounds, from $157.4 million, or 93 million pounds, thanks to drum-tight cost controls, pricing and sourcing gains and fewer markdowns.

Sales, as reported last month, rose 5.9 percent to $1.32 billion, or 715.5 million pounds, from $1.14 billion, or 675.8 million pounds, driven in part by the success of Prorsum, Burberry’s high-end collection that it shows on the Milan runway. Currency conversions were made at average exchange rates for the respective periods.

In a statement Tuesday, the company dubbed Prorsum the “highlight” of the year in the Burberry women’s business, which generates about 34 percent of overall revenue.

However, Burberry was cautious about the current fiscal year, which began on April 1.

The statement said consumer response to the spring collections was “muted” in certain markets, and first-half wholesale sales, including orders for the fall 2005 season, were broadly flat against last year.

Industry sources said those markets showing a muted response are mainly the U.S., the U.K. and Spain, among the company’s three largest markets. Those countries were already slowing down in growth terms last year. Tuesday’s statement said sales in Europe — Burberry’s biggest market — rose 2.8 percent, while sales in North America rose 2.2 percent. By contrast, sales in Asia Pacific grew by 14.8 percent.

Stacey Cartwright, Burberry’s chief financial officer, said the chilly weather has not helped spring sales, and Burberry’s florals, brighter colors and lighter fabrics have taken time to catch on with shoppers, as a result.

“We’re looking forward to autumn-winter 2005,” Cartwright said in a telephone interview. “It will be a more classic collection, following the tailored clothing trend — the sort of collection that will appeal to a professional, city lady.”

Cartwright said that, while wholesale orders for fall 2005 were flat against last year, the company is not overly concerned. “We’ll be looking forward to chasing reorders, rather than worrying that clients are sitting around with excess stock,” she said.

This story first appeared in the May 25, 2005 issue of WWD. Subscribe Today.

Cartwright said one of the big challenges for the current year was to keep pace with consumers and their demands for newness and freshness in the collections.

The statement added there would be more moderate licensing revenue growth in the current year, due to changes in distribution strategy in Japan and the softness of the apparel market there. However, global licenses, including Burberry’s booming fragrance business, are expected to produce strong gains, the company said.

In the current year, net retail selling area will increase 8 percent through the addition of new stores and concessions and the expansion of existing stores.

Cartwright said Burberry is placing a growing emphasis on its franchise partners in emerging markets, noting that the company plans to add seven to 10 franchised stores per annum in regions such as the Middle East, South America and Eastern Europe.

On Tuesday, the company also announced an infrastructure redesign initiative aimed at revamping business processes and systems, such as supply chain, support services and retail information systems.

The revamp foresees a $92.3 million, or 50 million pound, investment over three years, and annual benefits of $36.9 million, or 20 million pounds, by year three.

“Until now, we’ve been spending our time on the front end of the business, and we realized it was time to step back and reinforce IT and supply chain systems. I’m personally going to be spending a lot of time on infrastructure projects,” Cartwright said.

Antoine Belge, equities analyst at HSBC in Paris, said the infrastructure project was a positive move in the long term, although it will weigh on Burberry’s bottom line in the short term. “The company has been growing at a fast pace, and growing sales, and I think they realized just how behind they were in terms of infrastructure,” he said.

As reported, retail sales climbed 3 percent to $489.3 million, or 265 million pounds, from $435.1 million, or 257 million pounds. Wholesale sales grew 5.8 percent to $686.7 million from $594.9 million, or 371.9 million pounds from 351.4 million pounds. Licensing income shot up 17 percent to $144 million, or 78 million pounds, from $113.4 million, or 67 million pounds.

Meanwhile, the statement said women’s wear sales rose 7.3 percent, followed by accessories sales, which rose 4.4 percent, thanks to new styles and especially the new Prorsum Cinda bag, and men’s wear sales, which rose 2.3 percent.

The statement added that Burberry has begun a $461.6 million, or 250 million pound, share repurchase program with $107.1 million, or 58 million pounds, completed as of March 31.

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