Burberry Continues China Push As Sales Rise

(Dow Jones)--Burberry Group PLC (BRBY.LN) Wednesday said it will continue its push into China after the U.K. luxury fashion house posted a rise in second-quarter sales driven by growth in Asia and rising demand for coats and leather goods. "There is momentum in terms of strategy, sales and profit," Chief Financial Officer Stacey Cartwright told reporters.

Cartwright also said the iconic fashion company, famous for its red, black and camel colored check design, expects to remain unaffected by projected drops in consumer spending as governments cut public expenditure and rein in borrowing.

"We concentrate on our specific strategies irrespective of what in going on in the global economy. We have got initiatives to gain market share .... We are growing across a number of fronts."

Burberry recently completed the acquisition of 50 stores in China and is focusing much of its 20 to 30 new store openings this year in the Americas and Asia Pacific. It expects to increase selling space by 25% in the second half, of which about 15% will be in China.

In the past year, the company -- which has 164 retail stores, 171 concessions, 45 outlets and 55 franchise stores -- has reined in costs and continued to strip out unprofitable lines, curb overstocking and minimize the discounting of heritage items like raincoats and scarves to boost margins.

It has also clarified its ranges in the last 12 months, launching Burberry London as its wear-to-work label and Burberry Brit as its casualwear offering.

As well as upgrading its e-commerce operation, the group launched a social media site 'Art of the Trench' and has produced live global 3D broadcasts to further digitize the brand.

The group expects its full-year adjusted pretax profit before exceptional items to be GBP240 million to GBP270 million, which it said was a 5% increase on previous consensus. Cartwright said the company expects to improve its first-half gross margin performance by over 400 basis points.

It previously said that capital expenditure will increase to GBP130 million this year from GBP70 million in the last as it invests in new stores, store refurbishments and its supply chain.

Burberry reported an 11% rise in second-quarter sales to GBP382 million, from GBP343 million a year earlier, slower than the 27% rise in the first quarter, but on tougher comparables. With currency effects stripped out, second-quarter sales rose 8% compared with 21% growth in the first quarter.

For the first half of the year ending Sept. 30, sales jumped 18% to GBP673 million from GBP572 million. Asia sales jumped 50% year-on-year, while sales in the Americas rose 14%.

Second-quarter retail sales rose 27% to GBP195 million, led by Hong Kong, the U.K., Italy and France. Outerwear and large leather goods contributed about half of this growth, while Prorsum lines, shoes and childrenswear also posted strong performances. Wholesale revenue increased 6% to GBP139 million, but licensing sales dipped 9% to GBP25 million.

At 0922 GMT, Burberry shares fell 21 pence, or 2%, to 1018 pence in a higher London market, as investors took profits after a strong recent run.

It expects about a 10% increase in second-half wholesale revenue, excluding China and stripping out currency fluctuations. It also expects a mid single-digit percentage decline in full-year licensing revenue, stripping out currency fluctuations, as growth from global product licences is offset by a broadly flat performance from the Japanese apparel licence and the termination of the company's Japanese leather goods and menswear licences.

However, this is better than its previous guidance of a 5% to 10% fall. The group said the upgrade is due to a "stronger than expected" performance from fragrance and watches.

-By Simon Zekaria and Kathy Gordon, Dow Jones Newswires