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Demand boost for luxury brands

London, April 19, 2011

Strong demand for luxury brands from developing markets drove a 33 per cent rise in fourth quarter sales at Burberry, sending the British group's already buoyant shares to a new high.

Burberry's better-than-expected sales figures came a day after LVMH, owner of Louis Vuitton handbags, eased concerns about the luxury market following Japan's devastating earthquake, by beating fourth-quarter forecasts.

The 155-year-old maker of raincoats and handbags, reported revenues of 390 million pounds ($632.8 million) in the three months ended March, excluding its restructuring Spanish arm.

That compared with an average forecast of 357 million pounds in a Reuters poll of nine analysts.

Chief financial officer Stacey Cartwright said the strong performance was driven by sales of its higher-end Prorsum runway collection and its London wear-to-work range.

"We are looking for adjusted profit before tax to be around the top end of market expectations, with our understanding of that range being 279 million pounds to 300 million pounds," she told reporters on a conference call.

Shares in Burberry, best known for its camel, red and black check, rose as much as 8.6 per cent to a new high of 1,245 pence in morning trade. They were up 5.4 per cent by 1037 GMT, topping the FTSE 100 leaderboard.

LVMH's shares were up by 3.9 per cent at 1037 GMT, after earlier reporting first quarter sales rose by 17 per cent.

Seymour Pierce analyst Kate Calvert said Burberry had delivered a beat both in retail and wholesale sales.

"While the shares are trading on a premium to its luxury peers, we believe this is more than justified by the fact that we are forecasting Burberry to grow profits at least twice as fast as its main peers," she said.

Nomura said the space performance from new and acquired stores was "substantially better" than it expected, with a slowdown in like-for-like growth in the quarter unsurprising given a tougher comparative.

Burberry shares have outperformed the STOXX Europe 600 personal and household goods index by 47 per cent over 12 months and trade at 20 times forecast earnings for 2011-12, above larger rivals LVMH and Richemont on 18.5 and 16.8 respectively, according to Reuters data.

Like-for-like retail sales in the fourth quarter increased 11 per cent, against 14 per cent in the third, with a consistently strong performance in Asia Pacific and good early progress in China, the company said.

Tourist demand

Burberry said it was planning a 12-13 per cent increase in average selling space in its 2011-2012 financial year, excluding stores acquired from its franchise partner in China last year.

The group opened a net seven new mainline stores in the second half, including Shenzhen, Sao Paulo, New York and Milan, and plans to add 20-25 stores next year, mainly in China, Latin America and the Middle East.

Burberry shares have surged more than sixfold over the past 2-1/2 years after the group slashed costs during the global economic downturn and then rode a rapid recovery in the luxury sector, driven by demand from Chinese shoppers and tourists.

Wealthy Chinese consumers are some of the biggest buyers of expensive handbags and clothes in Europe's capital cities.

"The vast majority of our sales in London are done to tourists and the travelling luxury consumer," Cartwright said, adding that its stores were well placed to benefit from visitors to the city for the Royal Wedding later this month.

Burberry has also benefited from speculation it might be a bid target in a sector hotting up with deals.

The stock hit a high of 1,235 pence in March, but slipped slightly after a devastating earthquake in Japan raised fears about demand from the world's third-biggest luxury goods market.

Cartwright said the vast majority of Burberry's business in Japan was under licence with minimum payment guarantees, and the group was planning on the assumption they would be paid.

The small amount of retail sales in the country, accounting for less than 2 per cent of the total, had been hit but had since recovered somewhat, she added.

Chief executive Angela Ahrendts said in the statement that while the luxury industry faced global challenges in the year ahead, she was confident Burberry would continue to outperform. – Reuters




Tags: London | Developing markets | Burberry | Luxury brands | LVMH |

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