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Burberry and LVMH rides high on demand for luxury

Burberry and LVMH rides high on demand for luxury
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First Published: Tue, Apr 19 2011. 03 34 PM IST
Updated: Tue, Apr 19 2011. 03 34 PM IST
London: Strong demand for luxury brands from developing markets drove a 33 percent rise in fourth quarter sales at Burberry, sending the British group’s already buoyant shares to a new high.
Burberry’s better-than-expected sales figures came a day after LVMH, owner of Louis Vuitton handbags, eased concerns about the luxury market following Japan’s devastating earthquake, by beating fourth-quarter forecasts.
The 155-year-old maker of raincoats and handbags, reported revenues of £390 million ($632.8 million) in the three months ended March, excluding its restructuring Spanish arm.
That compared with an average forecast of 357 million pounds in a Reuters poll of nine analysts.
Chief financial officer Stacey Cartwright said the strong performance was driven by sales of its higher-end Prorsum runway collection and its London wear-to-work range.
“We are looking for adjusted profit before tax to be around the top end of market expectations, with our understanding of that range being 279 million pounds to 300 million pounds,” she told reporters on a conference call.
Shares in Burberry, best known for its camel, red and black check, rose as much as 8.6% to a new high of 1,245 pence in morning trade. They were up 6.1% by 0854 GMT, topping the FTSE 100 leaderboard.
LVMH’s shares also rose, by 4.2%, after it reported that first quarter sales rose by 17%.
Seymour Pierce analyst Kate Calvert said Burberry had delivered a beat both in retail and wholesale sales.
“While the shares are trading on a premium to its luxury peers, we believe this is more than justified by the fact that we are forecasting Burberry to grow profits at least twice as fast as its main peers,” she said.
Burberry shares have outperformed the STOXX Europe 600 personal and household goods index by 47% over 12 months and trade at 20 times forecast earnings for 2011-12, above larger rivals LVMH and Richemont on 18.5 and 16.8 respectively, according to Reuters data.
Like-for-like retail sales in the fourth quarter increased 11%, with a consistently strong performance in Asia Pacific and good early progress in China, the company said.
Burberry said it was planning a 12-13% increase in average selling space in its 2011-2012 financial year, excluding stores acquired in China.
The group opened a net seven new mainline stores in the second half, including Shenzhen, Sao Paulo, New York and Milan.
Burberry shares have surged more than sixfold over the past 2-1/2 years after the group slashed costs during the global economic downturn and then rode a rapid recovery in the luxury sector, driven by demand from Chinese shoppers and tourists.
The group has also benefited from speculation it might be a bid target in a sector hotting up with deals.
The stock hit a high of 1,235 pence in March, but slipped slightly after a devastating earthquake in Japan raised fears about demand from the world’s third-biggest luxury goods market.
Cartwright said the vast majority of Burberry’s business in Japan was under licence with minimum payment guarantees, and the group was planning on the assumption they would be paid.
The small amount of retail sales in the country had been hit but had since recovered somewhat, she added.
Chief executive Angela Ahrendts said in the statement that while the luxury industry faced global challenges in the year ahead, she was confident Burberry would continue to outperform.
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First Published: Tue, Apr 19 2011. 03 34 PM IST
More Topics: Company Results | Burberry | LVMH | Luxury | Fashion |