By Kathy Gordon
Luxury retailer Burberry PLC raised its full-year sales expectations after posting a forecast-busting 34% rise in first-quarter revenue amid growing global demand for its trenchcoats and designer handbags.
The strong performance from the clothing and accessories retailer—known for its classic raincoats and famous red, black and camel-colored check design—accentuated the increasing gulf between luxury brands whose customers are continuing to spend and the retail sector in general, which is suffering from slumping demand as consumers cut back on everyday spending.
Luxury retailers have enjoyed a strong turnaround in their fortunes, driven by gains in emerging markets, particularly China. The Asian giant has proved a powerhouse of sales, both domestically as well as from Chinese tourists buying luxury goods in Europe.
Burberry said growth is coming from all regions, all business divisions and all products as its quintessentially British designs are sold in an expanding number of stores world-wide.
Sales in the three months to June 30 rose to £367 million ($584 million) at constant exchange rates, ahead of estimates of £344 million, and the company raised first-half forecasts for its wholesale division, which includes sales to department stores and franchisees.
Burberry now expects wholesale to grow by a high-teens percentage, up from the previous forecast of mid-teens growth, because of higher-than-anticipated orders during rather than ahead of the season.
Traditionally, fashion houses showcase their forthcoming spring/summer or autumn/winter collections at the relevant fashion shows and wholesalers order ahead what they believe will sell in season.
But Burberry has broken with tradition and is updating and adding products mid-season, changing its marketing and products monthly, as well as improving its replenishment cycle. This provided a significant boost to sales, as the company is now able to respond quickly to in-season orders.
Retail sales, the biggest revenue growth driver for the company, rose 49% to £245 million at constant exchange rates, well ahead of the 34% rise expected by the market.
The strong growth came in part from around 100 new stores, but same-store sales also grew 15% as shoppers piled into Burberry's trenchcoats and handbags.
Burberry has been steadily opening its own stores and extending its ownership of franchise stores over the past few years, adding 50 Chinese franchise stores to its retail business in July 2010 at a cost of £70 million.
Asia Pacific was its strongest region, gaining 67% on a constant-currency basis to £121 million in the three months to June 30.
Chief Finance Officer Stacey Cartwright said Wednesday that analysts with forecasts at the lower end of the full-year profit range are likely to increase them after the strong first-quarter figures.
Seymour Pierce analyst Kate Calvert called Burberry's performance "faultless" and said the broker will review its forecasts in light of the stronger-than-expected performance.
Burberry shares were one of the biggest risers on the FTSE 100, up 2.57% or 37 pence at 1474 pence. Its shares have risen more than 80% in the past year, reflecting renewed demand in the luxury sector as well as the company's strong growth strategy.
