Burberry's slowing revenue growth causes luxury goods wobble
Source: BI-ME with Bloomberg , Author: Posted by BI-ME staff
Posted: Wed July 11, 2012 2:48 pm

INTERNATIONAL. Burberry Group Plc (BRBY) reported a slowdown in first-quarter sales growth that trailed analysts’ estimates as revenue from its licensing business fell, signaling a possible slowdown for the luxury-goods industry.

Sales increased 11 percent to 408 million pounds (US$634 million), the London-based company said today, missing the 417.8 million-pound average of six estimates compiled by Bloomberg. Excluding currency shifts, underlying revenue in the three months ended June 30 also rose 11 percent, slowing from growth of 15 percent and 21 percent in the previous two quarters.

Burberry fell as much as 6.9% in London trading, sliding to the lowest price since Jan. 3 and leading declines in luxury stocks across Europe. The weakening growth may fuel concern that Europe’s debt crisis and slowing economic growth in China are finally taking a toll on the luxury industry.

“The slowdown at Burberry highlights caution for peers,” Louise Singlehurst, an analyst at Morgan Stanley with an equal- weight recommendation on the stock, wrote in a note today.

The quarter was affected by the closure of some licenses, underlying revenue from which fell 5 percent, Burberry said. Full-year licensing revenue is still expected to be “broadly unchanged,” it said. Sales growth was driven by Burberry’s own stores, which now account for about 70 percent of revenue.

Burberry fell 5.5% to 1,214 pence as of 8:20 a.m. in London trading. Among other European luxury stocks, Cie. Financiere Richemont SA (CFR) dropped as much as 2.1%, LVMH Moet Hennessy Louis Vuitton SA slid as much as 2.7% and PPR SA, (PP) the owner of Gucci, declined as much as 2.2%.

Burberry, the U.K.’s largest luxury-goods company, will remain “responsive to the changing external environment,” Chief Executive Officer Angela Ahrendts said in a statement.

The maker of plaid trench coats is spending on boutiques and digital technology to keep customers interested amid Europe’s debt crisis and a slowdown in China.

So-called retail-wholesale sales rose 18 percent, excluding currency shifts, in the Asia-Pacific region and 16 percent in Europe during the quarter. Growth was 2 percent in the Americas, which was affected by the planned closure of some wholesale accounts, and 9 percent in the rest of the world, Burberry said.

Underlying retail sales increased 14%, or 6% at stores open at least a year, according to Burberry, which opened six mainline stores and closed two in the period. The company said it plans to increase average retail selling space by 12 percent to 14 percent in the year ending March 31, shifting from smaller to larger format stores.

Italy and Korea remained weaker markets, while sales growth at so-called mainline stores in the U.K., France, Germany and the Greater China region was strong in the period, Burberry said. Mainland China reported comparable sales growth of at least 10 percent, led by Beijing, the company said.

Men’s tailoring and non-apparel continued to perform strongly in Burberry’s largest stores as well as new merchandizing strategies in soft accessories, the company said. Burberry raised average selling prices at its biggest stores in the period, without saying by how much.

Wholesale revenue climbed by an underlying 9%, Burberry said, adding that some deliveries, mainly in Europe, were brought forward from the second quarter. The performance is consistent with guidance of a mid-single-digit percentage increase in underlying wholesale revenue for the six months ending Sept. 30.

Talks with Interparfums regarding the possible creation of a new operating model for the Burberry fragrance and beauty business continue, Burberry said.

 

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

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