UPDATE 2-Burberry targets super rich with bigger stores

Wed May 23, 2012 8:32am EDT

* Underlying pretax profit up 26 pct to 376 mln stg

* Results in line with expectations

* Capex of 180 mln to 200 mln stg planned

* Investment focus on flagship markets

* Shares down 2.3 pct vs 1.9 pct weaker FTSE

By Paul Hoskins

LONDON, May 23 (Reuters) - British luxury brand Burberry hopes to insulate itself against global economic headwinds by investing in bigger stores in major cities such as London, Chicago and Hong Kong that are popular both with tourists and the super rich.

Reporting another jump in profit on Wednesday, Burberry said it would invest up to 200 million pounds ($316 million) in the business over the coming year with about one third of it going towards larger format outlets including a relocated store on London's Regent Street and a rebuild in Chicago.

Chief Executive Angela Ahrendts said major global cities accounted for the lion's share of the world's luxury goods market and that Burberry still had room to grow in them.

"We do feel that we're underpenetrated in those markets versus our peers which is why we're focusing there but we also feel that those flagship markets are somewhat sheltered from the overall global economic environment," she told reporters.

Luxury goods shares have wobbled in recent months over worries about Europe's debt crisis and slowing growth in some emerging markets like China, where runaway demand for high-end goods has offset weaker trends in the United States and Europe.

In April even fast-growing Burberry reported a slowdown in quarterly sales growth, while Aquascutum, another upmarket British brand, fell into administration before being sold earlier this month.

Ahrendts said 156-year-old Burberry, known for its raincoats lined with the company's distinctive camel, red and black check pattern, was not worried about the prospect of weakening Asian demand.

"No, we have tremendous brand momentum, our products have never been better, we have more consumers engaging with the brand across every social media platform," she said during a conference call.

Chief Financial Officer Stacey Cartwright noted that Burberry was not as dependent on travelers from the far east as some imagine: "We have the Russians, the Middle Easterns, Indians, South Americans from Brazil travelling in all of the big flagship markets in the world, it's not just about Asia or China in particular."

Helped by high profile marketing campaigns starring the likes of supermodel Kate Moss and Harry Potter actress Emma Watson, Burberry has evolved over the last decade from a venerable outfitter of British royalty into a coveted global fashion brand.

The FTSE 100-listed group made an underlying pretax profit of 376 million pounds ($594 million) in the year to March 31, up 26 percent on the previous year and in line with analysts' expectations.

Revenue rose 24 percent to almost 1.9 billion pounds with underlying growth rates ranging from 15 percent in Europe and the Americas to 41 percent in Asia Pacific which has now overtaken Europe as the group's biggest region by sales.

Burberry said it planned to increase retail selling space by 12 to 14 percent in the coming year, opening about 15 new outlets weighted towards bigger stores, emerging markets and major global cities.

"They are heavy tourist markets, you've got huge population density and you typically have a higher percentage of high net worth individuals. We do make a disproportionate amount of our profits from those flagship cities," Ahrendts said.

The company said total capital expenditure in the current year would be between 180 million and 200 million pounds.

The cost and timing of the investment will result in a lower operating margin from retail and wholesale during the first half of the year but for the full year the company said it expected a further modest improvement in profitability.

Shares in Burberry, which have outperformed this year with gains of 17 percent and are worth six times what they were at the start of 2009, were down 2.3 percent at 1,354 pence by 1211 GMT. That compared to a 1.8 percent drop for the blue-chip FTSE 100.

"Whether this momentum can be maintained ... is of some concern to investors, whilst the situation in Europe, and to some extent the U.S., are undoubtedly a drag on overall growth," said Richard Hunter, head of equities at Hargreaves Lansdown.

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