* 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 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
"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
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
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'
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
"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.