Chinese demand boosts Burberry

    Chinese demand boosts Burberry

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    Luxury-clothing retailer said Thursday its net profit more than doubled, boosted by increasing popularity with Chinese shoppers and double-digit growth at both its retail and wholesale operations.

    The British clothing and accessories company—known for its classic raincoats and famous red, black and camel-colored check design—reported net profit of £208.4 million ($339.6 million), up from £81.4 million last year, and raised its full-year dividend by 43 per cent to 20 pence.

    Pretax profit before exceptional items, a figure closely tracked by analysts, rose 39 per cent to £297.9 million. The company had already announced a 21 per cent rise in sales to £1.55 billion in April.

    Luxury retailers have enjoyed a strong turnaround in their fortunes since the global economic crisis wiped the shine off high-end sales in 2009, driven by growth from emerging markets. China in particular has proved a powerhouse of sales, both in the country itself as well as from Chinese tourists buying luxury goods in Europe. Emerging-markets operations accounted for almost 16 per cent of Burberry’s sales across both its retail and wholesale operations, up from 11 per cent last year.

    Burberry is playing to these trends by earmarking the bulk of its capital expenditure for its owned retail stores in emerging markets, as well as refurbishing and extending retail space in capital cities such as London—where tourists from emerging markets like China, Russia and India make up an increasingly large proportion of customer sales.
    Burberry forecasts capital expenditure in the 2012 fiscal year of between £180 million and £200 million, partly reflecting the delayed spend from the prior year coming into fiscal 2012.

    The investment will be clustered around European cities including London, Paris and Milan, Chicago in the U.S. and Hong Kong, Shanghai and Saõ Paulo in China and Brazil.
    London in particular will see store space doubled to cope with increased demand from Asian consumers and to raise the company’s brand presence in the city where it is headquartered.

    But despite the strong earnings and growth program, there was little in the statement that hadn’t already been flagged a little over a month ago, and investors chose to take profits Thursday after a strong run up to Burberry’s full-year results.

    The stock was the biggest faller in the FTSE 100, trading down 2.5 per cent, or 33 pence, at £12.87 by midmorning in London. Still, Burberry shares have climbed from less than £2 at the nadir of the credit crisis in late 2008 to as luxury groups enjoy renewed demand and Burberry’s growth continues to deliver strong profits.

    Burberry has been steadily extending its ownership of franchise stores over the past few years and added 50 Chinese franchise stores to its retail business in July 2010 at a cost of £70 million. The company now owns and controls its entire store portfolio in China and is growing retail space there faster than anywhere else in the world.
    Chief Executive said the company could do other deals to buy out franchise partners when these become “mature”, but probably not on the same scale as China.

    Despite raising its capital-expenditure plans and splurging on flagship store openings and renovations, the company still generates excess cash but doesn’t have any plans for share buybacks.

    “We are happy to maintain a prudent balance sheet,” Chief Finance Officer Stacey Cartwright told reporters Thursday.
    The company ended the 2011 fiscal year with £298 million in cash.

    Source : Wall Street Journal