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Burberry Advances Most Since 2002 IPO as Sales Bring Relief

Burberry Shares Gain Most in Four Months as Sales Bring Relief
Burberry Group Plc today increased its forecasts for the retail and wholesale operating margin in the first half to be “at least in line” with last year, rather than lower as previously guided. Photographer: Simon Dawson/Bloomberg

Burberry Group Plc, the largest U.K. luxury-goods maker, rose the most since 2002’s initial public offering in London after the company reported a partial recovery in retail sales growth since September’s profit warning.

The shares gained 13 percent to 1,136 pence, spurring an advance in luxury-goods stocks across Europe. LVMH Moet Hennessy Louis Vuitton SA rose 3.8 percent to 122.95 euros in Paris and Cie. Financiere Richemont SA climbed 4.5 percent in Zurich.

Sales at stores open at least a year rose 1 percent in the second quarter, London-based Burberry said today, an improvement on the unchanged performance it reported on Sept. 11 for the first 10 weeks of the period. The retailer also increased its guidance for the second-half retail and wholesale operating margin. The profit measure will be in-line with last year, according to Burberry, which had previously predicted a decline.

“Demand has not fallen off a cliff,” Kate Calvert, an analyst at Seymour Pierce in London, said in a note. She raised her recommendation on Burberry to buy from hold.

The higher-priced Burberry Prorsum and London ranges outperformed in the second quarter compared with the entry-priced Burberry Brit range even as shopper numbers slowed, Chief Financial Officer Stacey Cartwright told reporters. The two more expensive ranges represent 49 percent of apparel sales, a 6 percentage-point gain compared to last year.

Profit Warning

“We’re seeing more business at the higher end, we do feel it is the aspirational luxury consumer who is more impacted against the current macro backdrop,” Cartwright said. A drop in the number of store visitors “suggests to us part of the slowdown is macro-related” given Europe’s debt crisis, upcoming Chinese elections and a decline in luxury travel, she said.

Burberry said last month that pretax profit for the year ending March would be at the lower end of a range of 407 million pounds ($652 million) to 454 million pounds, citing slowing same-store sales. The company today said second-half underlying wholesale revenue will be little changed.

“We expect the retail like-for-like beat will offset disappointments elsewhere,” said Bethany Hocking, an analyst at Investec who cut her recommendation to hold last month. “We do not ascribe to the view that the brand is damaged.”

Revenue in the three months ended Sept. 30 rose 3 percent to 475 million pounds, Burberry also said today. That was the worst performance since a 2 percent drop in the quarter ended March 2010 and compared with the 477 million-pound median of five analysts’ estimates.

Chinese Slowdown

“In a more challenging external environment, footfall declined, but brand momentum remained strong, particularly with our higher spending luxury consumer,” Chief Executive Officer Angela Ahrendts said in the statement.

In China, where a boom in demand for watches and jewelry has spurred sales gains for luxury companies, revenue has slowed ahead of a once-a-decade leadership transition by the Communist Party later this year, Cartwright has said. The executive said Chinese same-store sales in the second quarter were “marginally” positive from being in the “teens” previously. There has also been a slowdown in gift-giving, she said.

“I don’t think we can call at what point the brakes come off,” in China, she said, adding that Burberry is planning conservatively there.

The company announced separately that it will directly operate fragrance and beauty as its new fifth product division from April 2013 as it ends its license relationship with Interparfums SA. The move will help it take “greater control over our brand,” Ahrendts said.

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