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Burberry Falls as Sales Trail Estimates, Remains ‘Vigilant’

April 17 (Bloomberg) -- Burberry Group Plc fell the most in more than five months after reporting quarterly sales that trailed analysts’ estimates and said it remains “vigilant” about slower economic growth.

The stock dropped as much as 5.6 percent to 1,498 pence in London, the biggest intraday decline since Nov. 15. Revenue from continuing operations rose 16 percent to 453 million pounds ($719 million) in the three months ended March 31, Burberry said today in a statement. Analysts predicted 459.8 million pounds, the average of four estimates compiled by Bloomberg.

Demand for luxury apparel and accessories has flourished even as Europe’s debt crisis weighs on consumer spending and economic growth slows in China. LVMH Moet Hennessy Louis Vuitton SA said this month that sales are accelerating. Burberry said revenue was held back by adjustments to its wholesale business.

“Burberry has sufficient self-help to outperform peers and unless the environment slows, there should be further upside,” Simon Irwin, an analyst at Liberum Capital in London, wrote today in a note to clients. He recommends buying the shares.

Credit Suisse analysts led by Andrew Garthwaite downgraded luxury goods to “benchmark” from “overweight” yesterday, citing signs of “slowing momentum” in China.

Revenue rose 15 percent excluding currency swings, Burberry said. That compares with 21 percent in the prior quarter.

Shares of the U.K.’s largest luxury-goods maker have gained 27 percent this year. The stock performance, which compares with a 15 percent increase in the Bloomberg European Fashion Index, “is likely to drive profit taking,” Fraser Ramzan, an analyst at Nomura in London, wrote in a note to clients. He recommends buying the shares.

A Bit Better

Burberry, based in the English capital, traded 5 percent lower at 1,506 pence as of 1:30 p.m. in London, giving it a market value of about 6.6 billion pounds.

Like-for-like sales growth decelerated to about 20 percent in China from more than 30 percent in the third quarter, Chief Financial Officer Stacey Cartwright said on a conference call.

“We do remain vigilant, but that’s not because we’ve seen anything significant in our numbers,” she said. “It’s still a very creditable performance.”

In Europe, Burberry’s revenue was affected by a shift in the timing of wholesale deliveries, while the Americas were hit by the closure of some third-party accounts, the company said.

Retail sales rose 23 percent last quarter, accounting for 72 percent of overall revenue. In Europe, they were “modestly better” in the fourth quarter than in the third, according to Cartwright. Italy and Spain were “marginally better,” she said.

Wholesale revenue fell 2 percent and sales from licensing dropped 1 percent, Burberry said.

Perfume Talks

The company said it plans a 12 percent to 14 percent increase in average selling space in the year ended March 31 2013, opening about 15 mainline stores, mostly in emerging markets and cities with high tourist flows. It also expects mid-single digit percentage growth in wholesale revenue for the first half, while full-year licensing revenue should be “broadly unchanged.”

Discussions continue between Burberry and Interparfums regarding the potential establishment of a new operating model for the fragrance and beauty business, 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: Sara Marley at smarley1@bloomberg.net

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