April 17, 2013 / 11:31 AM / in 5 years

Burberry bolstered by China's demand for luxury

LONDON (Reuters) - British luxury group Burberry (BRBY.L) calmed fears about slowing demand in China with better-than-expected fourth quarter results as it sold more of its most expensive items.

Burberry said demand from affluent Asian customers for its more expensive handbags and coats helped boost sales. It said “aspirational” shoppers were spending less, but its most affluent customers were spending more and its staff were helping to push more expensive items.

Total group revenue for the six months to March 31 was 1.116 billion pounds, ahead of a company-compiled average analyst forecast of 1.098 billion pounds.

Burberry, which is reducing its Europe focused wholesale business to focus on tapping appetite for Western luxury in faster growing Asian and Latin American markets has been repositioning its brand at the higher end of the luxury market.

“Overall, this is a strong performance... While trading remains uneven, Burberry has regained strong momentum in critical Asian growth markets,” said Cantor Fitzgerald analyst Allegra Perry.

Last September, Burberry shook the global luxury industry by warning of a spending slowdown, particularly in China - the driving force behind demand in recent years - but it has been more upbeat on prospects there recently.

Fourth quarter group sales rose 10 percent to 503 million pounds ($769 million), beating Perry’s forecast of 489 million pounds and following a better-than-expected third quarter result. Retail sales, which make up 75 percent of revenue, grew 14 percent to 376 million pounds in the period.

Comparable store sales in the quarter grew by 8 percent, with double digit rises in China and Hong Kong.

Shares in Burberry, whose spring/summer campaign is being modeled by Briton Cara Delevingne and David Beckham’s son, Romeo, rose 4 percent to 1318.5 pence at 0844 GMT, taking it towards the top of the FTSE 100 risers in early trading.

Burberry said it would slow its store openings in 2013/14 after above average growth in the last two years. It said it would open a net 10 Burberry stores in the year, with three larger format stores opening in Shanghai to serve local customers and Chinese domestic tourists.

It expects the new stores to deliver a low to mid single digit percentage increase in retail sales.

    In Europe, where consumer spending has been hit hard in a downturn, second half sales rose four percent to 288 million pounds, compared to a 15 percent rise in Asia Pacific.

    This week the owner of luxury brand Louis Vuitton LVMH (LVMH.PA) posted the lowest quarterly sales growth since 2009 at its fashion and leather division, while Italian fashion house Prada SpA (1913.HK) has outlined plans to expand in the Middle East and the Americas to help offset lower spending in Europe.

    In a Reuters survey this month, over half of 23 brands at stores in London, Paris and Milan - including Gucci, Hermes and Jimmy Choo - also reported lower demand from tourists, notably from Asia. Burberry, however, said tourist levels in the region had been fairly stable.

    At its wholesale business, lower demand and account closures in Europe, Burberry’s largest region, saw revenue fall in the second half. The firm said it expects underlying wholesale revenue to fall by 10 percent in the six months to September 30.

    Total group revenue for the six months to March 31 was 1.116 billion pounds, ahead of a company-compiled average analyst forecast of 1.098 billion pounds.

    ($1 = 0.6540 British pounds)

    Editing by Elaine Hardcastle

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