Burberry to expand to cash in on luxury boom

Burberry is to ramp up its expenditure on stores in London, flagship cities globally and in emerging markets after it delivered a 40 per cent surge in full-year profits.

Stunning growth in Asia helped the fashion brand to post a 27 per cent leap in revenues to £1.5bn over the year to 31 March, as CEO Angela Ahrendts said the luxury sector remained "very strong worldwide" and was forecast to see double-digit growth in the next few years.

Perhaps more eye-catching was Burberry's plans nearly to double its capital expenditure this financial year to £180m to £200m, compared with £108m the year before.

The bulk of this money will be spent on opening new and refurbishing existing stores worldwide, including doubling its space in London and spending £20m in the capital.

In addition to opening its Burberry Brit store in London's Covent Garden this month, the luxury brand plans to open a huge flagship store on the capital's Regent Street by knocking through the walls of the Habitat and LK Bennett shops it has acquired. The group currently has seven Burberry Brit stores globally, which emphasises its 155-year-old British heritage and displays its more casual fashion labels.

With tourists from Asia, the Middle East and Russia boosting trade in London, Ms Ahrendts said: "London is not only our home market but consistently one of our top markets."

In the year ahead, Burberry plans to increase its average retail selling space by an average of 12 to 13 per cent. This will include up to 25 new stores, with a bias towards openings in China, Latin America and the Middle East.

However, a key focus of its store strategy will be in flagship markets, including London, Paris, Milan, Chicago, San Francisco, New York, Shanghai, Sao Paulo and Hong Kong.

Ms Ahrendts said: "The flagship markets have been so much more resilient than the second-tier markets."

For the year to 31 March, Burberry's adjusted pre-tax profits jumped by 39 per cent to £298m. Under the leadership of Ms Ahrendts – who took the helm in July 2006 after leaving the US retailer Liz Claiborne – Burberry has transformed its fortunes by reinvigorating its fashion credentials, overhauling its supply chain and systems, and putting in place a more efficient corporate structure.

The group, which has 174 mainline stores and 199 concessions globally, has also continued to buy out franchise partners, such as its £70m acquisition in China in September that has delivered a sharp improvement in its performance in the country.

Burberry, which is famous for its trench coats and its check pattern, boasted net cash of £298m on its balance sheet and lifted its full-year dividend by 43 per cent to 40p.

The group also delivered a record operating margin of 15.6 per cent. However, given its hefty investment programme in stores, Burberry expects to post only a "modest improvement" in its operating margin this financial year.

Of Burberry's global regions, Asia-Pacific grew the fastest, delivering retail and wholesale revenues up by 53 per cent to £457m, while Europe was a comparative laggard after posting revenues up by 15 per cent to £474.6m.

Non-apparel, notably handbags, jewellery and shoes, was Burberry's star-performing category, with revenues up by 32 per cent to £563.3m.

Eku Kobayashi, an economist at H2O Markets, said: "It is the exposure to emerging markets rather than recession-hit Western nations that has driven [Burberry's] profitability at a difficult period in the economic cycle."

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