Burberry Profit Exceeds Expectations as Sales Surge in Asia

Burberry Group Plc (BRBY), the U.K.’s largest luxury-goods maker, reported full-year profit that beat estimates, boosted by strong demand in China and Hong Kong, and increased the dividend by more than analysts expected.

Adjusted pretax profit advanced 14 percent to 427.8 million pounds ($652.9 million) in the year through March, London-based Burberry said today, compared with the 417.5 million-pound median of six estimates compiled by Bloomberg News.

Booming demand for luxury goods in China is stoking sales growth at the maker of $2,795 trenchcoats, which so far has shrugged aside signs of a slowdown in the industry. LVMH Moet Hennessy Louis Vuitton SA (MC) last month reported the slowest growth in fashion and leather-goods revenue in more than three years, while Prada SpA reported figures that disappointed analysts.

Burberry’s “template for international and digital success has set the standard that other retailers must try to emulate,” Dan Coen, a director at advisory firm Zolfo Cooper, said by e-mail. “The luxury retailer has succeeded in accessing international markets by rapidly ramping up its presence in growth areas such as China.”

A dividend for the year of 29 pence a share represented a 16 percent increase on the previous year and exceeded the 27.8 pence average estimate of 20 analysts compiled by Bloomberg.

Burberry gained as much as 2.7 percent to 1,503 pence in London trading, the highest since May 4. The stock has risen 21 percent this year, valuing the company at 6.6 billion pounds.

Expensive Goods

Burberry is expanding retail operations and increasing average prices to target the market for the most expensive goods, which Bain & Co. estimates will grow faster than cheaper lines. While the high end of the luxury market is booming, so-called aspirational shoppers are growing weary of heavily logoed products, according to the consultant.

China and Hong Kong both posted double-digit percentage growth in comparable store sales for the year, compared with a low single-digit increase in the Americas, Burberry said. Europe was broadly unchanged after a strong first quarter. Total revenue advanced 8 percent to 2 billion pounds.

Global luxury sales will rise 4 percent to 5 percent this year, excluding currency shifts, Bain estimated last week. Growth will be sustained as booming demand in southeast Asia offsets a slowdown in China and Europe, Bain said.

Burberry said last month that profit would probably be at the top end of estimates after same-store sales rose 7 percent in the second half. Earnings may rise to 450 million pounds to 480 million pounds this year even as the global environment remains challenging, the company said April 17.

Capital Spending

The luxury-goods maker’s “brand elevation continues,” Christopher Walker, an analyst at Nomura International Plc.

Capital spending at Burberry will be about 200 million pounds this year, directed toward 25 new stores and digital initiatives, Chief Executive Officer Angela Ahrendts said on a video posted on Youtube. Openings are expected to contribute low-to-mid single-digit percentage growth to retail revenue in fiscal 2014, Burberry said.

Revenue will be weighted to the second half as underlying wholesale revenue decreases about 10 percent in the six months through September, Burberry said. Clients globally planned more conservatively for fall and there is a continuing impact from cutting wholesale accounts and entry price products, it said.

Adjusted profit before tax for the six months through September is expected to be below last year’s 173 million pounds, Burberry said. The beauty business, which Burberry has taken in-house, is expected to be dilutive to first-half earnings, it said.

The aim this year is to increase “modestly” the operating margin from last year’s 17.1 percent, Burberry said.

To contact the reporter on this story: Andrew Roberts in Paris at aroberts36@bloomberg.net

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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