Burberry H1 profit hurt by currency losses
By Yasameen Noorian

Burberry Group said Wednesday that currency losses were behind a dip in its H1 profit figure but the UK-based luxury fashion house doesn’t see …

Nov 12, 2014
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Burberry Group said Wednesday that currency losses were behind a dip in its H1 profit figure but the UK-based luxury fashion house doesn’t see a repeat in H2 if exchange rates flatten. The company also said it plans to spend around £200m in fiscal 2015, with around two-thirds of the total on retail projects including the opening 20 mainline stores around the world. Pre-tax profit in the six months ended September 30 fell 12% to £141.8m ($226.6m) from £159m a year ago as an “adverse exchange-rate impact” wiped £31m off the bottom line.However, Burberry noted that adjusted underlying profit actually rose 6% to £152m with double-digit underlying revenue growth in all regions.

Revenue rose 14% to £1.1bn from £1bn last time, or up 7% on a reported basis. It also noted digital outperformed in the period as the company upgraded its mobile platform “enhancing the customer experience in 11 languages and 44 countries”, it said.

Retail revenue increased 15% underlying in the half, accounting for 68% of total group revenue. Comparable sales growth was 10%, reflecting its focus on retail productivity and growth in digital.

“Customers increasingly moved between offline and online throughout their purchase journey, reflected in the contribution to digital sales of orders via iPads in store (over 25%) and ‘order online, collect in store’ (over 20%),” it said.

Meanwhile, each of its three main product divisions delivered double-digit percentage underlying growth, underpinned by outerwear and large leather goods which together accounted for nearly half of mainline retail growth, said Burberry. Product highlights included rainwear, women’s Prorsum, men’s tailoring, solid leather bags and soft accessories.

Accessories grew 14% underlying, representing 36% of retail/wholesale revenue. In mainline retail, fashion outperformed replenishment, reflecting the success of Prorsum and solid leather bags in key shapes and colours, continuing innovation in design, colour and materials in scarves and the success of the runway poncho, which received a very strong editorial and consumer response, said Burberry.

Burberry said sales to Chinese customers increased throughout the period, although growth slowed. With retail accounting for about 85% of revenue in the region, Asia Pacific delivered double-digit comparable sales growth in the half, as did China and Hong Kong.

“Reflecting a more difficult external environment, there was some softening in demand in the second quarter across the region,” the company said. “Ahead of the transition from license to retail in 2015, our small business in Japan selling the global collection continued to deliver strong revenue growth.”

In EMEIA, retail accounted for about 65% of the region’s revenue in H1 with comparable sales growth in the mid-single-digits, led by France, Germany and Spain. In the UK, domestic demand remained strong, it said, offset by weakness from the travelling luxury customer where demand appears to have shifted to other countries within the region.

In the Americas, where retail accounted for about 60% of sales in H1, the region delivered double-digit comparable sales growth backed by increased conversion and penetration of digital.

Wholesale, representing 29% of total revenue, saw revenues rise 13% underlying, or up 8% reported. Excluding beauty, wholesale revenue rose 5% underlying with beauty wholesale revenue up 55% underlying.

Operating margin fell 80 basis points underlying to 13.1%, impacted by one-off costs relating to a fragrance launch.

Chief creative officer and chief executive Christopher Bailey said: “Looking ahead, in a more difficult external environment, we continue to focus on the things that we can control. Through authentic

products, great customer experiences and a culture of continuous improvement and innovation, we remain confident of Burberry’s sustained outperformance.”

For fiscal 2015, new space is expected to contribute low to mid-single-digit percentage growth to total retail revenue, including around 20 mainline store openings balanced out by the closure of 20 stores during the year.

Excluding beauty, Burberry expects wholesale revenue at constant exchange rates to be down by a mid-single-digit percentage in the six months to March 31, with a more cautious approach from wholesale customers selling to European consumers and in Asian travel retail markets.

For Beauty, wholesale revenue is expected to grow by around 25% at constant exchange rates in fiscal 2015.


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