Nov. 7 (Bloomberg) -- Burberry Group Plc, the U.K.’s largest luxury-goods maker, reported first-half profit that exceeded estimates and said its new cosmetics division should boost earnings from 2014.
Adjusted pretax profit for the six months ended Sept. 30 advanced 7 percent to 173.4 million pounds ($278 million), the London-based company said today in a statement. The average of six analysts’ estimates compiled by Bloomberg was 169.2 million pounds. The company increased the first-half dividend 14 percent to 8 pence a share.
Burberry is raising prices and eliminating some entry lines to nudge its image upscale as demand for luxury goods wanes. First-half retail sales rose 10 percent on an underlying basis as the trenchcoat maker sold more of its higher-priced Prorsum and London ranges than the cheaper Brit line, even as store traffic slowed. For the full year, the company said it continues to expect a “modest” improvement in its retail and wholesale operating margin.
“We remain long-term fans but the backdrop is tough, Christmas is crucial, and we see few near term-catalysts,” said Bethany Hocking, an analyst at Investec Ltd. in London, who downgraded the stock to hold from buy.
Burberry shares fell 1.9 percent to 1,228 pence at 2 p.m. in London, after earlier rising as much as 2.2 percent. Last month, the stock advanced the most since 2002 after the luxury goods maker reported a partial recovery in retail sales growth following a profit warning.
“We’re as solidly positioned for the second half as we’ve ever been, at least for the things that we can control,” Burberry Chief Executive Officer Angela Ahrendts said in a video posted today on YouTube.
Burberry will pay 181 million euros ($232 million) in the second half to end its license relationship with Interparfums SA, according to today’s statement. Of this, 71 million pounds was booked as an exceptional item in the first half.
Directly operating a new fragrance and beauty division starting April 1, 2013, represents a “significant opportunity” to develop lower-priced categories where the company has room to expand, Burberry said. The unit will have a “broadly neutral” effect on next year’s adjusted pretax profit and boost earnings from fiscal 2014/2015, it said.
In the second half, average retail selling space is “on plan” to increase by about 14 percent, while underlying wholesale revenue will be “broadly” unchanged from last year, Burberry said, repeating guidance given last month.
Full-year licensing revenue will also be similar to that of last year on a reported basis and excluding currency swings, the company said. Full-year capital expenditure remains unchanged at 180 million pounds to 200 million pounds, Burberry also said.
Burberry said in September that pretax profit for the year would be at the lower end of a range of 407 million pounds to 454 million pounds.
To contact the reporter on this story: Andrew Roberts in Paris at firstname.lastname@example.org
To contact the editor responsible for this story: Celeste Perri at email@example.com