Burberry Up Over 8% After Defying Slowing Growth

Published in Company Comment on 11 October 2012

Burberry (LSE: BRBY) also announces plans to bring perfume and beauty business in-house.

Burberry (LSE: BRBY) confirmed its slowing growth in its first-half trading update this morning, with comparable store sales growth at 1% in Q2 compared to 6% in Q1. However, the luxury retailer did announce that the total revenue increased by 8% on an underlying basis (11% in Q1, 5% in Q2), to £883m from £830m at H1 2011, while underlying retail revenue was up 10% to £577m from £528m at the same point last year.

Chief executive officer Angela Ahrendts stated that the results should be set "against record prior year comparatives", and the trading update stressed that lower footfall in the second quarter was countered by higher quality sales and average spend.

The comany confirmed that second-quarter growth slowed in the UK and China, though its operations in Hong Kong, France and Germany remained robust. Ahrendts continued: 

"Our highly experienced team remains very focused on the consistent execution of our key strategies, engaging consumers through innovative retail and digital marketing initiatives as we enter the most important quarter of the year.  We continue to invest for long-term growth in flagship and emerging markets, while tightly controlling discretionary spend."

In further news this morning, the company has revealed that it is to directly operate its Burberry brand in fragrance and beauty following the end of its existing licence relationship with Interparfums SA.

Ahrendts commented:

"Directly operating fragrance and beauty is in line with our strategy of taking greater control over our brand.  There are significant opportunities to accelerate the growth of this business over time, leveraging our infrastructure and that of existing key suppliers and distributors. 

"We are very excited about fragrance and beauty becoming an important fifth product division for Burberry, as we more closely align it with our core business and brand positioning."

The move is not thought to be too risky, as Burberry already leads all product design, packaging and marketing activities for this product division, and will now take control of the relationship with sourcing, logistics and distribution partners globally. In order to ensure a smooth transition, the company has extended its licence relationship with Interparfums until 31 March 2013, with Burberry due to commence direct operations from 1 April 2013.

Shares were up over 8%, or 82p, at the time of writing, after having dropped over 30% on the initial unexpected news of a slowdown in growth back in September. But directors splashed out more than £1 million of their own money to buy shares when that happened, a sign that they were convinced the company's share price presented a buying opportunity at its 52-week low.

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> Sam does not own shares in any of the companies mentioned. The Motley Fool has recommended shares in Burberry.

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