Burberry continues march with big profit rise

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LUXURY goods brand Burberry shrugged off the eurozone’s woes and China’s slowing growth as it posted a 26 per cent surge in annual profits.

The group, which makes its iconic trench coat in Castleford, said it plans to invest up to £200m in new outlets and expanding stores in London, Chicago and Hong Kong.

Underlying pre-tax profits at the handbag and raincoat maker hit £376m in the year ended March 31, up from £298m a year earlier.

Revenues surged 24 per cent to £1.9m and the group hiked its dividend 25 per cent to 25p per share.

The FTSE 100 group is benefiting from the burgeoning luxury market in fast-growing economies, with the Asia Pacific region showing underlying growth of 41 per cent to £652.5m.

Sales in the Americas and Europe both rose 15 per cent to £434.5m and £552.6m respectively.

“We focus on the things we can control,” said chief executive Angela Ahrendts, adding the group remains “ever vigilant” to the external environment. “We have tremendous brand momentum. Our products have never been better. We have more customers engaging with the brand. Honestly, steady wins the race.”

Luxury goods markets have been under pressure in recent months, with Burberry last month reporting a slowdown in quarterly sales growth, and upmarket brand Aquascutum falling into administration.

The World Bank this week trimmed its economic growth forecast for China this year to 8.2 per cent from 8.4 per cent. Stalling global trade knocked the annual rate of Chinese GDP growth in the first quarter to 8.1 per cent from 8.9 per cent in the previous three months.

Burberry focuses on areas with high-spending local populations and strong tourist flows.

Chief financial officer Stacey Cartwright said Burberry limited its exposure to Greece “some time ago”. “We always insist we have payment up front from wholesalers and we do not have any retail.”

She added currency fluctuations have only wiped a “couple of million” from profit.

Burberry said core outerwear, including trenchcoats, along with large leather goods, remained a “primary growth driver”. They generated about half of the group’s revenues. “We’ve never lost touch with the great heritage we have,” said Ms Ahrendts. “We were born from a coat. The outerwear heritage is still the backbone of our business... with the majority of it (trenchcoats) being manufactured here at our facility in Castleford.”

The factory, which employs 600 people, has doubled capacity since 2010.

The group also recently launched an apprenticeship centre at Castleford and also at Woodrow, Burberry’s printing and weaving factory in Keighley.

Burberry saw double-digit growth across all its categories.

The group has increasingly focused on retail in recent years. This now makes up more than two-thirds of group sales, compared with 43 per cent in 2006.

It has also stepped up its exposure to growth markets, with sales in Asia Pacific comprising 37 per cent of the total, versus 22 per cent six years ago. The group ended the year with net cash of £338m.

Its expansion this year will continue the focus on retail, where the bulk of its £180m-£200m investment will go.

It plans to add another 12 to 14 per cent of space.

“In luxury, 60 to 70 per cent of the sector is done in the 25 to 27 flagship markets around the world,” said Ms Ahrendts.

“We do feel under-penetrated in these markets. We also feel that these markets are somewhat sheltered from the overall economic environment.”

It is planning 15 new outlets in the current financial year, with the focus on larger format stores such as its relocated site in London’s Regent Street.

It has 63 stores in mainland China, accounting for 12 per cent of revenues.

The group opened 23 stores in 2011/12, with flagship stores in Hong Kong, Paris and Taipei.

This year it is also exploring expansion into Croatia and South Africa through franchises.

Analysts’ concerns

Analysts said the group continues to outperform lacklustre markets but questioned how long this can continue.

Shares in the group shed 17p to close at 1,369p. It is valued at more than £6bn.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, described the annual results performance as robust.

He said: “A 24 per cent rise in pre-tax profits defies some of the economic gloom, whilst the company’s exposure to some strong local markets continues to propel prospects. Whether this momentum can be maintained, however, is of some concern to investors.”