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Burberry Surges on Sales Gain, Higher Profit Forecast

Burberry Group Plc, the U.K.’s largest luxury retailer, surged in London trading after reporting that three-month sales rose 27 percent and saying that adjusted full-year profit will exceed its previous estimate.

Revenue in the fiscal third quarter ended Dec. 31 increased to 480 million pounds ($768 million) from 380 million pounds a year earlier, London-based Burberry said today in a statement. The average estimate of three analysts compiled by Bloomberg was for sales of 437.7 million pounds.

Burberry, known for its trench coats, is the second luxury company in as many days to report a double-digit sales increase in the last three months of 2010, suggesting wealthy consumers are regaining confidence. Cie Financiere Richemont SA, the world’s largest jewelry-maker, said yesterday that fiscal third-quarter sales climbed 33 percent, boosted by Asian demand.

“Merry Christmas,” Thomas Chauvet, an analyst at Citigroup Inc., said today in a note. Retail sales were better than expected, while momentum in emerging markets, travel retail and U.S. department stores remains strong, said Chauvet, who has a “hold” recommendation on Burberry shares.

Burberry rose as much as 59 pence, or 5.6 percent, to 1,118 pence and was up 5.3 percent at 2:25 p.m. in London, extending the stock’s gain in the past 12 months to 86 percent.

Profit Forecast

Burberry now forecasts full-year adjusted pretax profit of 250 million pounds to 290 million pounds and predicts that the figure will be near the top end of the estimate, Chief Financial Officer Stacey Cartwright said on a conference call. The previous prediction was for profit on that basis of 240 million pounds to 270 million pounds.

“Ongoing initiatives in retail, digital, product development and new markets underpin our confidence in the future,” Chief Executive Officer Angela Ahrendts said in today’s statement.

The fourth quarter will be more challenging as year-earlier figures were stronger and as raw material costs rise, Cartwright said, echoing comments yesterday by Geneva-based Richemont, which makes Jaeger-LeCoultre watches and Cartier jewelry. Burberry expects more modest gross-margin gains in the second half, Cartwright said.

Excluding Spain, where the retailer stopped making a local collection and closed a warehouse, revenue advanced 30 percent in the fiscal third quarter, while sales at stores open at least a year rose 14 percent.

China Stores

Sales climbed 68 percent in the Asia Pacific region, boosted by the acquisition of 50 franchised stores in China, Burberry said. Revenue in the Americas climbed 24 percent. Excluding Spain, European sales increased 13 percent, with “particular strength” in the U.K. and France, Burberry said.

All product divisions posted double-digit growth, with “outperformance” from the Prorsum clothing line, shoes, small leather goods and men’s accessories at Burberry’s own stores, the company said.

Revenue at Burberry’s own stores climbed 40 percent, lifted by the opening of seven “mainline” stores. For the second half, average selling space is expected to increase by about 25 percent, Burberry said, confirming its previous guidance. About 15 percent of this will be in China, the company said.

Third-party sales increased 15 percent, though excluding China and currency swings, wholesale revenue rose 35 percent. Strong consumer demand is leading to higher in-season orders, meaning second-half revenue is set to rise by a “high-teens” percentage, excluding China and currency moves, Burberry said, revising a previous estimate of about 10 percent growth. Including China, wholesale revenue will rise by “a mid single-digit percentage,” excluding currency swings, Burberry said.

Licensing revenue declined 11 percent. For the full year, Burberry said it still expects licensing revenue to fall by a mid single-digit percentage.

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