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Apr 20, 2011
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Burberry, LVMH ride high on demand for luxury

By
Reuters
Published
Apr 20, 2011

Apr 19 - Strong demand for luxury brands from developing markets drove a 33 percent rise in fourth-quarter sales at Burberry, sending the British group's already buoyant shares to a new high.

LVMH, Burberry
Burberry A/W 2011-12 womenswear at London Fashion Week (photo by Pixel Formula)

Burberry's better-than-expected sales figures came a day after LVMH, owner of Louis Vuitton handbags, eased concerns about the luxury market following Japan's devastating earthquake by beating fourth-quarter forecasts.

The 155-year-old maker of raincoats and handbags reported revenue of 390 million pounds ($633 million) in the three months ended March, excluding its restructuring Spanish arm, beating the average estimate of 357 million in a Reuters poll of nine analysts.

Chief Financial Officer Stacey Cartwright said the strong performance was driven by sales of its higher-end Prorsum runway collection and its London wear-to-work range.

"We are looking for adjusted profit before tax to be around the top end of market expectations, with our understanding of that range being 279 million pounds to 300 million pounds," she told reporters on a conference call.

Shares in Burberry, best known for its camel, red and black check, rose 6 percent, topping the FTSE 100 leaderboard.

LVMH's shares rose 5 percent, crossing above both their 50-day and 200-day moving averages. The stock is still down about 6 percent so far this year.

The world's biggest luxury group said late on Monday that first-quarter sales rose 17 percent as all its business divisions achieved double-digit organic revenue growth.

The French company said the earthquake disaster led to a 25 percent drop in sales in Japan last month, or a 9 percent decline in the country for the first quarter.

It had since reopened more or less all of its shops in the world's third-biggest luxury goods market, where it generates 9 percent of group sales.

"We still face a very uncertain situation in Japan," finance chief Jean-Jacques Guiony told a conference call on Tuesday. "Our hope is that Japan will be able to overcome the current situation as quickly as possible."

TRADING PREMIUM

Burberry delivered a beat both in retail and wholesale sales, Seymour Pierce analyst Kate Calvert said.

"While the shares are trading on a premium to its luxury peers, we believe this is more than justified by the fact that we are forecasting Burberry to grow profits at least twice as fast as its main peers," she said.

Nomura said the space performance from new and acquired stores was "substantially better" than it expected, with a slowdown in like-for-like growth in the quarter unsurprising given a tougher comparative.

Burberry shares have outperformed the STOXX Europe 600 personal and household goods index .SXQP by 47 percent over 12 months and trade at 20 times forecast earnings for 2011-12, above larger rivals LVMH and Richemont on 18.5 and 16.8 respectively, according to Reuters data.

Like-for-like retail sales in the fourth quarter increased 11 percent, against 14 percent in the third, with a consistently strong performance in Asia Pacific and good early progress in China, the company said.

Burberry said it was planning a 12-13 percent increase in average selling space in its 2011-2012 financial year, excluding stores acquired from its franchise partner in China last year.

The group opened a net seven new mainline stores in the second half, including Shenzhen, Sao Paulo, New York and Milan, and plans to add 20-25 stores next year, mainly in China, Latin America and the Middle East.

Burberry shares have surged more than sixfold over the past 2-1/2 years after the group slashed costs during the global economic downturn and then rode a rapid recovery in the luxury sector, driven by demand from Chinese shoppers and tourists.

Wealthy Chinese consumers are some of the biggest buyers of expensive handbags and clothes in Europe's capital cities.

"The vast majority of our sales in London are done to tourists and the traveling luxury consumer," Cartwright said, adding that its stores were well placed to benefit from visitors to the city for the Royal Wedding later this month.

Burberry has also benefited from speculation it might be a bid target in a sector hotting up with deals.
LVMH agreed in March to acquire Italian jeweler Bulgari for 3.7 billion euros ($5.3 billion). It has also built up a stake of more than 20 percent in luxury peer Hermes.

Cartwright said the vast majority of Burberry's business in Japan was under license with minimum payment guarantees, and the group was planning on the assumption they would be paid.

The small amount of retail sales in the country, accounting for less than 2 percent of the total, had been hit but had since recovered somewhat, she added.

By Paul Sandle
(Additional reporting by Mark Potter in London, Pascale Denis, James Regan and Blaise Robinson in Paris; Editing by Alexander Smith and Mike Nesbit)

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