15th Jul 2015 11:46
LONDON (Alliance News) - Burberry Group PLC on Wednesday reported a rise in revenue in the first quarter of its financial year and said profit for the year will be GBP20 million higher than the prior year if exchange rates remain at current levels, although it warned that the increase would be offset by "a more adverse geographic mix".
Burberry shares were trading lower throughout the day on Wednesday on the back of the trading update, down 1.9% to 1,590.00 pence early afternoon to be the worst performer in the FTSE 100.
Burberry said that if exchange rates remain at current levels, profit for retail and wholesale for the full year will be about GBP20 million higher than that achieved the prior year, which is GBP10 million higher than estimated in the guidance it gave during its full-year results in May. However, the retailer does expect this to be offset by "a more adverse geographic mix", particularly from the high margin market of Hong Kong.
The fashion retailer said that retail revenue grew 10% to GBP407 million in the three months to June 30, as it experienced double-digit growth in Europe, the Middle East, India and Africa, high single-digit growth in the Americas, but a low single-digit decline in Asia Pacific, hit by a challenging market in Hong Kong.
Burberry said it continues to receive a strong customer response to its heritage trench coats and cashmere scarves, as well as the "emerging key category" of ponchos. It added that digital continued to outperform, with mobile penetration of sales more than tripling compared to the prior year, supported by the investment it made in improved mobile functionality last year.
The company opened five mainline stores and closed three in the quarter and said that net new space in the year will contribute low single-digit percentage growth to total retail revenue, with 15 to 20 mainline store openings and a similar number of closures.
Total wholesale revenue is expected to be broadly unchanged in the first half of the year at constant exchange rates, and excluding beauty is expected to be down by a low single-digit percentage. Wholesale revenue for beauty, however, should grow by 10% to 15% at constant exchange rates in the year.
In the licensing division, full-year revenue is still expected to decline by about 40% at constant exchange rates, due to the expiry of Japanese licences. But, Burberry expects double-digit percentage growth from the global product licences and about GBP25 million from Japan.
Burberry added that adjusted pretax profit at constant exchange rates will be weighted towards the second half of the year.
"While mindful that the external environment remains challenging, we will continue to focus on growth opportunities across channels, regions and products, with exciting plans for the year ahead," Chief Executive Christopher Bailey said in a statement.
"Despite its recent chequered history, this update is rather more upbeat than the full year numbers in May," said Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers.
"Admittedly, the situation in the Asia Pacific region remains mixed, particularly in Hong Kong where trading is under pressure," Hunter said. However, "the currency headwinds have improved, the company continues to refine its retail store portfolio to maximise selling opportunities, whilst its digital presence goes from strength to strength," he adds.
Overall, Hunter thinks the durability of the company's iconic products continues to appeal to its higher-end customers, while the broadening of its brand to the likes of fragrances is already starting to pay dividends. "Given that the first quarter is historically the quietest for retail, this bodes well for the remainder of the year, especially given Burberry?s statement that there are some 'exciting plans' for the year ahead," he says.
Mike van Dulken, head of research at Accendo Markets, agreed with Hunter that the statement looks more upbeat than what Burberry had said previously. He said the first quarter is not the most important for the company and noted the positive upgrade to retail and wholesale profit guidance.
The positive note on profit guidance is in contrast to what Burberry said back in May when publishing its results for the year to the end of March, when it cut its profit guidance for 2016 due to foreign exchange translation effects and "increased uncertainty" in some of its markets.
Nomura, which lowered its 2016 profit estimates for Burberry after the update, still kept its Buy rating and 1,990 pence price target intact, saying it still sees the company as "well positioned versus peers to benefit from digital, and increasingly mobile penetration, with further opportunities to drive in-store productivity and thus expand margins over the medium term."
By Karolina Kaminska; [email protected] @KarolinaAllNews. Additional reporting by Sam Unsted; [email protected]; @SamUAtAlliance.
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