Burberry continues to rise above the gloom

LUXURY goods company Burberry reported strong demand for its trademark raincoats and leather goods, despite the dire economic outlook.

Burberry, best known for its camel, red and black check textile pattern, is to press ahead with expansion plans although it is ready to change them should there be any sign of a big drop in consumer spending.

Luxury goods stocks have fallen sharply in recent weeks on signs of an economic slowdown in China, which has been the engine of recent strong growth in demand for luxury goods.

There are also fears that the euro zone debt crisis could tip the world back into recession.

Burberry said bumper sales helped half-year revenues rise by 30 per cent to £830m.

Like-for-like sales growth was up slightly in the three months to September 30, up 16 per cent from 15 per cent in the first three months.

Total retail growth slowed to 42 per cent in the second quarter from 49 per cent in the first.

Outerwear and large leather goods accounted for half of the growth, with the Burberry London trench coat range a major contributor.

Despite the name, Burberry’s iconic trench coats are made at the company manufacturing base in Castleford.

Much of Burberry’s success over the past few years has been credited to chief creative officer Christopher Bailey, who hails from Halifax.

Mr Bailey has helped to transform the label from a ‘chav’ brand to one representing the height of British style.

Chief executive Angela Ahrendts said the company’s first half performance “clearly demonstrates” the continued global momentum of the Burberry brand.

But she said the group is prepared to “respond appropriately” if there is any significant change in demand in the luxury sector.

Finance director Stacey Cartwright said: “There is no evidence of any slowdown. What we have seen is consistent strong brand momentum and business growth.”

While applauding Burberry’s performance, some analysts remained concerned.

“There is limited visibility at this stage on the outlook for the critical Christmas season,” Citi analysts said.

“It is too early for luxury demand to be materially affected by recent equity market dislocation and deterioration in economic conditions.”

Demand is being driven by new store openings and tourists spending in countries such as China, Brazil, Russia, India and Saudi Arabia.

Spending by travellers could account for over half of revenues at stores in major cities like New York, London, Paris, Hong Kong and Dubai, Ms Cartwright said.

Customers scooped up the group’s trademark trench coats, which can cost anything from a few hundred pounds to around £12,000, while accessories such as the new Burberry Body perfume also sold well, she add- ed.

David Jeary, an analyst at Investec Securities, said concerns about growth in China have been overdone and the update underlines the strength of the group’s strategy.

He forecasts profits for the year of £365m.

Burberry said shoes, childrenswear, menswear and men’s accessories all did well, especially in the US and emerging markets.

Analysts at H2O Markets said: “The half year update shows that Burberry has continued to deliver impressive growth, particularly in China, and there seems to be little effect on the rate of growth from the global economic slowdown.”

Burberry said the first-half operating margin in its retail and wholesale businesses would be broadly flat, compared with a previous forecast for a small decline.

The company kept full-year guidance for a “modest improvement” in the margin.

Ms Cartwright said she did not expect any change in analysts’ consensus full-year profit forecast, which stands at around £370m.

Burberry plans to increase average retail selling space by about 15 per cent in the second half, including stores in Paris, China and Latin America.

It expects wholesale revenue to rise by a mid single-digit percentage in the second half, down from nine per cent in the first half, due to tougher comparative figures.

A role in history

Burberry dates back to 1856 when Thomas Burberry, a 21-year-old draper’s apprentice, opened a small outfitter’s shop in Hampshire.

In 1880, Burberry developed Gabardine, the breathable, weatherproof and tearproof fabric.

In 1895 it launched a predecessor of the trench coat worn by British officers during the Boer War. Equipped by Burberry, Norwegian explorer Roald Amundsen became the first man to reach the South Pole in 1911.

In 1914 the company was commissioned by the War Office to adapt its officer’s coat.