January 15, 2013 / 7:59 AM / 5 years ago

Burberry hails China rebound

LONDON (Reuters) - British luxury brand Burberry Group Plc (BRBY.L) highlighted a rebound in Chinese demand as it beat forecasts with a 9 percent revenue rise after a particularly strong week in the run up to Christmas.

Shares in the 157-year-old seller of raincoats and leather goods, known for its camel, red and black check pattern, rose more than 4 percent after it said revenue in the three months to December 31 reached 613 million pounds ($985 million).

That topped analysts’ average forecast of 602 million pounds, according to a company poll.

Last September Burberry sent shock waves through the global luxury industry by warning of a broad-based slowdown in spending - particularly in China, which had been the driving force of a boom in demand for luxury goods.

But it had already calmed investors with subsequent statements, saying for instance that sales had steadied in the final weeks of its second quarter.

Its latest figures showed double-digit underlying sales growth for Hong Kong and China in the third quarter, a significant jump from “marginally positive” growth in the second quarter.

“The better performance in China ... was we believe driven in part by an improvement in wider consumer sentiment, but also (by) self-help measures,” Chief Financial Officer Stacey Cartwright told reporters.

Cartwright noted staff had focused on ensuring more store visitors departed with purchases and on cross-selling products, such as persuading a customer to buy a belt to match a new handbag.

She said Burberry remained confident about the outlook for China. “We think all of the economic indicators continue to point to very nice growth out of that market and particularly within the luxury sector for the years ahead,” she said.


Shares in Burberry, up 18 percent in the last three months, were up 51 pence at 1,376p by 0956 GMT, restoring the price to pre-September levels and valuing the business at 6.09 billion pounds.

“Burberry had a better Christmas than expected,” said Investec analyst Bethany Hocking, who expects consensus pretax profit forecasts for the current year to move up about 2 percent to 410 million pounds.

    Burberry’s third-quarter retail revenue was up an underlying 13 percent to 464 million pounds, with scarves, mens’ tailoring and accessories outperforming and the firm selling a higher proportion of goods from its top-end Prorsum and London lines.

    Comparable store sales growth reached 6 percent versus analysts’ consensus forecast of 2 percent and a second-quarter increase of 1 percent.

    However, wholesale revenue - or sales through non-Burberry stores - at 120 million pounds was down an underlying 5 percent, with growth in the United States, from Asian airports and emerging markets more than offset by weaker European markets.

    Burberry is now forecasting underlying wholesale revenue to fall by “a low to mid single-digit percentage” year-on-year in the second half, versus previous guidance for a broadly unchanged performance.

    Cartwright said the reduced wholesale guidance reflected lower sales to small specialty accounts in Europe - which she defined as “Mom and pop, owner-run, multi-brand accounts in secondary, tertiary cities across markets like Italy.”

    “There is a heightened concern on our part about the robustness from a credit perspective of some of those accounts in Italy,” she said. But she stressed that retail, as opposed to such wholesale business, represents 75 percent of Burberry’s total sales.

    “We always talk about retail being the leading indicator and wholesale being the lagging indicator, so (it‘s) much more important to focus on the retail numbers,” she said. ($1 = 0.6224 British pounds)

    Editing by Kate Holton and David Holmes

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