Burberry profit tops forecasts on better margins

Burberry profit tops forecasts on better margins

London: British luxury goods group Burberry beat forecasts with a 49% jump in first-half profit as fewer markdowns and better management of stock combined with an already-reported rise in sales.

Chief executive Angela Ahrendts said on Tuesday she expected the group’s trademark trenchcoats to sell particularly well this Christmas.

“We cannot keep them on the shelves. I think trenchcoats are going to be a best seller this year," she told reporters, adding the 154-year-old firm would launch an online service allowing shoppers to create a bespoke coat early next year.

Burberry, known for its camel, red and black check pattern, made profit before tax and one-off items of £129 million ($206 million) in the six months to 30 Sept., beating a forecast for 114 million in a Reuters poll.

The group’s positive tone echoed that of other luxury firms such as LVMH and PPR as the world moves out of recession and high-end companies benefit from a surge in big-spending Chinese tourists.

However, US consultancy Bain forecast last month that luxury sales growth would slow to 3-5% next year from 10% in 2010, as the basis for comparison becomes higher and currency moves could hamper tourist flows.

Burberry said last month it expected full-year profit in the top half of analysts’ forecast range of £240-270 million, after a 21% rise in first-half revenue boosted by sales of coats and leather goods.

Finance chief Stacey Cartwright said she did not expect analysts to change their forecasts after upgrades then.

Citi analyst Thomas Chauvet, however, said he thought the consensus profit forecast would rise to £280-285 million, though he kept a “hold" investment rating on the shares, saying the good news was largely priced in after recent strong gains.

Burberry shares, which have surged three-quarters in value this year, periodically boosted by bid speculation, were up 0.5% at 1,025 pence by 0850 GMT, outperforming a 1% decline on Britain’s benchmark FTSE-100 share index.

Cash Pile

Burberry shares trade at a premium to rivals as a multiple of forecast earnings, and Investec analyst Katharine Wynne said this was deserved given the group’s strong momentum and potential to expand in fast-growing emerging markets.

She also saw the prospect of a capital return to shareholders in 2011.

Burberry said it had net cash of £181 million, but Cartwright declined to be drawn on how this might be used apart from already-announced expansion plans, and said the board believed it was right to retain a prudent balance sheet.

The group, which is opening stores and investing online, lifted its interim dividend by 43% to 5 pence a share.

The gross profit margin leapt from 57.6% to 64.3% in the first half, due to a drive to ensure “heritage" products such as rainwear and cashmere scarves are never marked down, although the group forecast only a modest improvement in the second half against a tougher comparison.

It reiterated previous second-half guidance for its retail, wholesale and licensing divisions, and kept its full-year capital spending target at £130 million, despite a deal in the first half to buy Chinese stores from its franchisee.