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By
Reuters
Published
Oct 13, 2010
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Chinese shoppers and coat sales boost Burberry

By
Reuters
Published
Oct 13, 2010

LONDON, Oct 13 (Reuters) - British luxury group Burberry (BRBY.L) expects full-year profit to reach the top half of analysts' forecasts, after a 21 percent rise in first-half revenue boosted by strong sales of coats and leather goods in China and Europe.

Burberry
Burberry Autumn/Winter 2010 Ad Campaign

The 154-year-old maker of raincoats and handbags said on Wednesday its expansion in stronger growing emerging markets, coupled with a surge in tourism from countries such as China, would help it to cope with the austerity measures being implemented in developing economies.

"We're growing across a number of fronts and we think that is standing us in good stead, irrespective of what the economies throw at us," finance chief Stacey Cartwright told reporters.

Burberry shares, up around 75 percent this year, fell more than 2 percent as some analysts questioned whether the small profit upgrade was enough to sustain such strong gains.

"While we see upside risks from a long-term, growth story, we believe the short-term positive newsflow is largely priced in," said Citi analyst Thomas Chauvet.

Burberry, best known for its camel, red and black check pattern, said revenue rose 12 percent at constant exchange rates to 359 million pounds ($571 million) in the three months to Sept. 30, excluding its restructuring Spanish business.

That was up from 282 million pounds in the first quarter and compares with an average forecast of 358 million in a Reuters poll of eight analysts.

Growth was driven by strong demand in China, Hong Kong, Britain, Italy and France, with many of these markets benefiting from a rise in tourist travel, particularly by the Chinese.

Cartwright said comparable store sales at Chinese stores recently acquired from a franchise partner surged over 25 percent in the first half and Chinese shoppers were now the group's number one customers in many major cities, such as London where they account for about 30 percent of all sales.

By Mark Potter

PROFIT MARGINS

Luxury goods firms have mostly enjoyed a strong 2010 so far as the world economy moved out of recession. But moves in many countries to rein in government borrowing, such as higher taxes and spending cuts, have raised fears demand will slow again.

A survey on Wednesday showed UK consumer confidence falling to its lowest level in a year.

LVMH (LVMH.PA), the world's number one luxury group, reports third-quarter sales figures on Thursday.

Burberry weathered the economic downturn better than many rivals thanks to a quick response which saw it slash costs, jobs, stocks and ranges. It has since stepped up investment, focusing on emerging markets, e-commerce and menswear, and is reaping the benefits.

Its shares, which have been periodically lifted by bid speculation, have outperformed the STOXX 600 European household and personal goods sector .SXQP by about 45 percent this year.

Cartwright declined to comment on the bid rumours, but denied reports chief executive Angela Ahrendts was looking to move on, saying she was committed to the business as ever.

First-half gross profit margins rose by more than 400 basis points, Cartwright said, adding the group was better placed to cope with rising input costs than many rivals because it was at an earlier stage of building a global supply chain.

Comparable store sales rose 8 percent in the second quarter, down from 10 percent in the first, and Burberry forecast a 25 percent increase in selling space in the second half, with the bulk coming from the acquired stores in China.

Wholesale revenues rose 21 percent at constant currencies and excluding China in the first half, slightly ahead of company guidance. It forecast 10 percent growth in the second half.

Analysts expect Burberry to make a full-year underlying profit of 240 million to 270 million pounds, Cartwright said.

Burberry shares trade at about 25 times forecast earnings, above LVMH on 21.7 and Richemont (CFR.VX) on 19.9, according to Reuters data. (Editing by Sharon Lindores and Louise Heavens) ($1=.6286 Pound)

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