Burberry fashions record half year profits
Wednesday 17 November 2010
Burberry touted a strong performance in Asia and barnstorming sales of its leather aviator jackets for driving record half-year profits yesterday.
The luxury group also hailed the contribution of a 26 per cent surge in non-apparel sales, with the star performer being its leather handbags, to pre-tax profits surging by 49 per cent to £118m.
Angela Ahrendts, the chief executive of Burberry, said: "The continued focus on the brand, ongoing investment in our digital, IT and retail infrastructure, especially in China, and a disciplined approach to driving growth underpin our confidence in delivering long-term sustainable returns."
Total revenues at Burberry, which has retail, wholesale and licensing divisions, rocketed by 21 per cent to £641m over the six months to 30 September.
Ms Ahrendts, who has been feted for her turnaround at Burberry, cited an impressive performance in China where it acquired in September 43 of the 50 stores that were previously operated by its franchise partners. Sales at the new company-owned stores jumped by 25 per cent in the half-year. Burberry expects to transfer over the seven remaining franchise stores over the coming months.
Sales across its emerging markets division accounted for 13 per cent of total sales in the first half, up from 11 per cent last year, with Turkey also making a strong contribution.
Ms Ahrendts said Burberry would continue to invest in new markets from India and China to the Middle East to deliver "long-term sustainable growth". The luxury brand also boasted double-digit underlying sales growth in Europe – where it has 87 shops including concessions – with the UK, Italy and France "among the best performing markets".
In the UK, which accounts for 6 per cent to 7 per cent of its global sales, Ms Ms Ahrendts said: "We are absolutely thrilled that it [UK] is one of the strongest markets in the world for us. We have a loyal local customer base and London is one of the most visited places in the world today. We get Russian, Middle Eastern tourists coming in... and we now get the Chinese customers coming in."
A key driver of the uplift in Burberry's retail and wholesale profits to £87m was a 670 basis point rise in its gross margin.
Ms Ahrendts said that Burberry's aviator jackets had gone down a storm with customers. She said: "The aviator went down the runway [catwalk] last autumn in about 10 different iterations and it is very difficult to find one in one of our stores these days."
She also played down the prospect of Burberry following other retailers in rising prices next year, in the wake of cost pressures in the supply chain from spikes in the price of cotton and record freight charges.
Ms Ahrendts said that through better negotiation with suppliers, aided by its increased volumes, it would be able to "mitigate all these to a large extent".
Burberry raised its interim dividend by a massive 43 per cent to 5p.
High street up and downs
Until the summer sun started to fade, most of the high street had enjoyed a better than expected year of trading. However, in recent months, signs of just how tough life has become for some of the UK's most well-known chains have emerged. At the troubled end of the high street, the beleaguered sportswear chain JJB continues to suffer falling margins resulting from hefty discounting.
Even among some of the country's most profitable retailers, such as Next, underlying retail sales have gone into reverse. Yesterday, French Connection provided further evidence of tough trading with like-for-like sales at its UK and European retail division down by 7.7 per cent for the 15 weeks to 13 November.
But the City was buoyed by French Connection's wholesale revenues being "well ahead of the level last year", prompting Numis analysts to substantially mark up their pre-tax profit forecast to £5.3m for this financial year. Elsewhere, JD Sports Fashion continued to shine with sales growth of 2.7 per cent for the four weeks up to 28 August.
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