UPDATE: Burberry Shares Rise On Chinese Store Acquisition

16th Jul 2010 09:29

(Rewrites, adds detail.) By Molly Neal and Simon Zekaria Of DOW JONES NEWSWIRES LONDON (Dow Jones)--Shares in Burberry PLC (BRBY.LN) rose sharply Friday after the U.K.-based luxury fashion house continued its strategy to take greater control of its worldwide brand with the GBP70 million acquisition of 50 stores in China. The cash deal to buy the stores from its existing franchise partner in China will allow Burberry to better control its brand and implement its own customer services, IT, public relations and marketing campaigns to boost profits, the company said. At 0815 GMT Burberry's shares were the highest riser on the FTSE 100 index trading up 25 pence, or 3.2%, at 816 pence, valuing the company at GBP3.55 billion. They have risen 90% in the last twelve months as the company's trading has consistently outperformed expectations. Investec analyst David Jeary said the investment to profit return ratio and the company's extra foothold in one of the fastest growing markets in the world are two scenarios that would please investors. Numis Securities analyst Nick Coulter said the deal "secures the distribution platform" in an increasingly wealthy Chinese market and demonstrates the success of Burberry's control of its product. The stores generated GBP75 million of sales and GBP14 million of profit for Burberry's franchise partner in China last year, but the company expects the stores to contribute GBP20 million to group profit by March 2012. However the deal, which is due to complete in the Autumn, will be earnings neutral next year because the profit that is currently booked through the wholesale division will move to the retail division. Wholesale profit is booked at the point of delivery whereas retail profit is booked at the point of sale. Chief Executive Angela Ahrendts said the deal is the "natural next extension" of Burberry's "pure global brand strategy worldwide." The stores are located in 30 cities in China, including nine in Beijing and four in Shanghai. Burberry also already directly operates 13 stores in Hong Kong, one in Macau and 19 in Taiwan. The company Tuesday reported a 27% rise in first-quarter sales and said it expects its luxury brand to remain relatively immune to economic pressures. -By Molly Neal, Dow Jones Newswires; 44-0-207 842 9358; [email protected] and Simon Zekaria, Dow Jones Newswires; +44 20 7842 9410; [email protected] (END) Dow Jones Newswires July 16, 2010 04:29 ET (08:29 GMT)