LONDON — Despite a slowdown in sales growth in the second half, Burberry is expecting pretax profits to outstrip expectations for the fiscal year ended March 31.
Sales in the second half rose 2.2 percent to 368 million pounds, or $696 million at current exchange, from 360 million pounds, or $680 million, driven chiefly by an increase in the number of retail stores worldwide and the growth of wholesale sales in Asia, continental Europe and emerging markets.
Burberry said in a second-half trading statement Wednesday that at constant exchange rates, sales increased 6 percent.
Growth in second-half sales was modest compared with previous semesters due partly to a slowdown in licensing revenue in Japan, a soft U.K. market and a muted response to the early spring women’s collection in the U.S.
In the corresponding period last year, sales grew 12.8 percent and in the first half of the 2004-05 fiscal year, sales grew 8 percent.
Despite the slowdown in the second half, Burberry said year-end EBITA, or earnings before interest, taxes and amortization, would be higher than expected, and a minimum of 162 million pounds, or $306 million, compared with last year’s 141 million pounds, or $266 million.
Analysts’ estimates for year-end EBITA were in the range of 157 million to 160 million pounds, or $297 million to $302 million. Burberry plans to report full year-end figures for the fiscal year on May 24.
“Burberry continued to manage for the bottom line, delivering a solid result for the half,” said chief executive Rose Marie Bravo, in the statement. “This will allow the group to achieve EBITA ahead of expectations for the 2004-05 financial year.”
Antoine Belge, equities analyst at HSBC in Paris, said Burberry was able to boost EBITA thanks to a lower level of markdowns compared with previous years, later end-of-season sales and good overall cost controls.
Burberry’s outlook for the current fiscal year, which began April 1, is cautious. The company said first half wholesale sales are “broadly flat” against last year, based on orders received to date for fall 2005.
The company is also expecting “more moderate” licensing revenue growth, due mostly to Japan. Since last year, Burberry has been streamlining the distribution of certain products in that market and rethinking some licenses. In addition, Japan’s apparel environment was particularly soft in the period.
On an positive note, Burberry plans to increase its retail selling space by 8 percent in the current fiscal year with new stores set to open in cities such as Naples, Fla.; San Antonio; San Diego, and Atlantic City, N.J. Burberry has signed a lease for a new store in Madrid, which is expected to open in 2006. Spain is one of the company’s biggest European markets.
In the second half, retail sales rose 1.3 percent to 155 million pounds, or $293 million, from 153 million pounds, or $289 million, while wholesale sales climbed 1.8 percent to 174 million pounds, or $329 million, from 171 million pounds, or $323 million.
Licensing income rose 8.3 percent to 39 million pounds, or $74 million, from 36 million pounds, or $68 million.
The company said growth at retail was due chiefly to store openings and refurbishments. In the U.S., new stores and outlets offset the effects of store renovation work and what the company referred to as “muted response” from consumers to early spring women’s fashions.
The U.K. market continued to be soft, while Hong Kong and South Korea registered gains in the period. Burberry said South Korea continued to be volatile as a result of a challenging retail environment.
Wholesale sales growth came mostly from Asian markets and continental Europe, with sales in the U.S. increasing marginally in the second half. Emerging markets, including China, continued to show vigorous growth at wholesale.
Global product licenses, and especially the booming fragrance business, drove growth in the second half and offset the licensee cancellations and transitions in Japan.
Meanwhile, for the full year, sales rose 5.9 percent to 716 million pounds, or $1.35 billion, from 676 million pounds, or $1.28 billion. At constant exchange rates, year-end sales rose 10 percent.
For the full year, retail sales climbed 3.1 percent to 265 million pounds, or $501 million, from 257 million pounds, or $486 million. Wholesale sales grew 6 percent to 372 million pounds, or $703 million, from 351 million pounds, or $663 million. Licensing income shot up 16.4 percent to 78 million pounds, or $147 million, from 67 million pounds, or $127 million.