BURBERRYS OPERATING NET FALLS 59.8%; ASIA ILLS CITED
Byline: James Fallon
LONDON — Burberrys revealed Wednesday it’s another luxury goods victim of the Asian economic crisis, reporting a 59.8 percent drop in operating profits for the year ended March 31.
Parent company Great Universal Stores PLC (GUS) further said Burberrys’ results in the current fiscal year will be even lower.
Operating income for Burberrys in the most recent year came to $41.5 million against $103.4 million a year earlier. Sales fell 6.7 percent to $424.3 million from $454.7 million. Dollar figures are translated from the English pound at current exchange.
Burberrys is undergoing a major revamp under new chief executive Rose Marie Bravo, who joined from Saks Fifth Avenue last October. Bravo has recruited new creative, design and marketing teams to update the brand’s image and, GUS said, lessen its dependence on the Far East. However, GUS admitted Wednesday that Bravo’s moves will have little impact on Burberrys until the financial year beginning April 1999.
“The year ending March 31, 1999, will suffer from the full year’s effect of the problems recently encountered, and consequently, Burberrys’ profit can be expected to be lower than in the year ended March 31, 1998,” GUS said.
Lord Wolfson of Sunningdale, chairman of GUS, said it would take two to three years to return Burberrys to its previous profits and sales levels.
The economic turmoil in the Far East was the main reason for the sharp decline in profits at Burberrys, as profits and sales declined both in the region and elsewhere following the drop in the number of Asian tourists.
About two-third of the sales of Burberrys products are done in the Far East, mostly licensed products.
But GUS said Burberrys also was hit by its decision to crack down on parallel imports, or gray-market trading of its merchandise in order to protect the integrity of its brand. Its stock levels had grown significantly over the last few years in order to service the Asian market, and the anti-gray market strategy and the fall in demand resulted in a stock write-down of $28.3 million last year. In addition, Burberrys closed three U.K. production plants during the year to cut its capacity.
Burberrys now operates 73 stores worldwide, with 28 in the U.K., 25 in the U.S. and 20 in Continental Europe. It also has four factories — two raincoat factories in the U.S. and the U.K., a polo shirt factory in the U.K. and a sock factory in the U.K.; wholesale businesses in the U.K. and the U.S., mainly in rainwear and accessories, and 33 licenses worldwide for apparel, fragrance, watches, jewelry and eyewear.
Overall, GUS — whose primary operations are in mail order catalogs and database management — reported a 14 percent rise in after-tax profits for the year to $725.8 million from $636.7 million on a 16.2 percent increase in sales to $5.6 billion from $4.82 billion.
Earnings per share rose 6.3 percent to 64.9 cents from 61 cents.