2nd UPDATE: Burberry Year Starts Strongly As Sales Rise 27%

13th Jul 2010 09:48

(Rewrites. Adds CFO analyst comment, detail.) By Simon Zekaria Of DOW JONES NEWSWIRES LONDON (Dow Jones)--U.K. luxury fashion house Burberry PLC (BRBY.LN) Tuesday reported a strong start to its fiscal year with a 27% rise in first-quarter sales and said it expects to remain unaffected by projected drops in consumer spending. The company said it is not overly concerned about the effect of potential macroeconomic headwinds on consumer spending as governments across the world take measures to cut public expenditure in order to rein in borrowing. "We have such momentum in the Burberry brand. We continue to outperform irrespective of what the local economy is doing," said Chief Financial Officer Stacey Cartwright. Burberry's better-than-expected increase in sales to GBP291 million from GBP229 million for the three months to June 30 was boosted by purchases of outerwear and non-apparel accessories and a strong performance from Europe and Asia-Pacific. Retail sales rose 21% year on year, with sales from stores open at least a year up 10% and new space generating 6% of total growth. Wholesale sales rose 51%, helped by supply chain efficiencies, while licensing sales increased 36%, supported by a favorable yen hedge rate that will benefit the first half. Investec Securities analyst Katharine Wynne said the first quarter numbers were very good, with a standout performance from wholesale and strong figures from retail. Still, at 0819 GMT, Burberry shares were down 12 pence, or 1.6%, at 777 pence, having earlier risen over 2%. Burberry's shares have risen 89% over the past 12 months as the group's trading has consistently exceeded expectations. CFO Cartwright said the group, which sources 60% of its raw materials from Europe, is not majorly affected by the yuan de-pegging from the dollar, which is seen to affect Chinese imports. At constant exchange rates, first-quarter sales rose 21%. In May, Burberry--known for its outerwear apparel such as raincoats and iconic red, black and camel colored checked designs--said it would accelerate spending on growth initiatives such as stepping up store openings and upgrading its online business after it recorded a forecast-beating 23% rise in full-year pretax pre-items profit. The company's current guidance is to increase its average retail selling space by 10% in the year to March 2011 and to post a 10% rise in wholesale sales for the first half to Sept. 30 at constant exchange rates. For its licensing business, Burberry expects a full-year decline of 5% to 10% at constant exchange rates. Growth from global product licences will be offset by a broadly flat performance from the Japanese apparel licence and the termination of the company's Japanese leather goods and menswear licences, the group said. Capital expenditure for 2010/2011 will increase to GBP130 million from GBP70 million last year as the company invests in new stores, store refurbishments and its supply chain. It opened 8 stores in the first quarter, out of a planned total of between 20 and 30 this fiscal year, predominantly in the Americas and Asia Pacific. It has also focused on stripping out unprofitable lines and expanding its accessories range. Cartwright said investors have not expressed concerns over executive pay, ahead of the company's annual shareholders meeting on Thursday. Other U.K. retailers such as Tesco PLC (TSCO.LN) and Marks & Spencer Group PLC (MKS.LN) have recently attracted criticism over senior executive pay. "You have to bear in mind that the way incentives are structured is based on pay (relating to) performance. The most influential shareholder body has not raised any concerns in this area," Cartwright said. -By Simon Zekaria, Dow Jones Newswires; +44 207 842-9410; [email protected] -0- (MORE TO FOLLOW) Dow Jones Newswires July 13, 2010 04:48 ET (08:48 GMT)