17th Apr 2007 07:03
Burberry Group PLC17 April 2007 Burberry Group plc Second Half 2006/07 Trading Update 17 April 2007. Burberry Group plc reports on trading for the six months ended 31March 2007. Second Half Financial Highlights •Total revenue increased 20% on an underlying(1) basis, 19% reported(2) •Retail sales increased 24% underlying, driven by new and existing stores - in the fourth quarter, retail sales increased 24% underlying •Wholesale revenue increased 17% underlying •Licensing revenue increased 15% underlying €2007/08 outlook - 13% approximate average retail space expansion - Mid-teens first half underlying wholesale revenue growth - Broadly flat underlying licensing revenue relative to 2006/07 Revenue by geographical origin (statutory accounts format) Second Half -------------- £ million 2006/07 2005/06(2) Europe(excluding Spain) 144 111Spain 87 68North America 113 98Asia Pacific 115 107 ------- -------- Total 458 384 Revenue by channel of distribution Second Half Full Year ---------------------- ----------------------- --- --- Reported % change Reported % change ----------- ------------ ----------- ------------- ------ ------ ------ ------ ------ ------£ million 2006/07 2005/06(2) Reported Underlying(1) 2006/07 2005/06(2) Reported Underlying(1) ------ ------ ------ ------- ------ ------ ------ -------- Retail 241 192 25 24 410 319 29 24Wholesale 172 151 14 17 354 343 3 8Licence 45 41 9 15 86 81 6 10 ------ ------ ------ ------- ------ ------ ------ --------Total 458 384 19 20 850 743 14 15 (1) Second half underlying figures exclude the financial effect of the portionof Burberry's business in Spain affected by the retail conversion, in bothreporting periods. In addition, full year underlying figures also include thefirst half adjustment for the Taiwan acquisition. For both periods, underlyingfigures are calculated at the same exchange rates used in the 2005/06 reportedresults. Burberry initiated actions related to the retail conversion in Spainduring the third quarter of 2005/06. (2) As reported in the 2005/06 Preliminary Results presentation and statement,following change in foreign currency translation methodology. Commenting on the trading results, Angela Ahrendts, Chief Executive Officer,stated, "Burberry achieved outstanding 20% underlying revenue growth in thesecond half. The significant investment initiated during this financial year toenhance the luxury component of the brand, advance retail expansion and evolveour operating model is driving accelerated growth across all three channels:retail, wholesale and licensing. This performance is consistent with ourexpectations for the full financial year." Total revenue Total revenue in the second half ended 31 March 2007 increased 20% on anunderlying basis (i.e. adjusted for (i) the portion of Burberry's business inSpain affected by the retail conversion and (ii) exchange rate differences). TheSpain retail conversion shifts sales from Burberry's wholesale channel to itsretail channel. In determining underlying performance, the financial effect ofthe affected business is excluded from both reporting periods. Total reportedrevenue increased 19%. Adverse exchange rate movements reduced the reported gainby approximately five percentage points. Second Half Retail and Wholesale Revenue by Geographical Market (Destination) Reported % change ------------ ------------- ------- -- --------Region 2006/07 2005/06(2) Reported Underlying-------------- ------- ------- ------- -------- Europe (excluding Spain) 120 99 21 21Spain 77 60 28 5North America 115 100 15 25Asia Pacific 92 78 18 24Other 10 6 74 74 ------- ------- ------- -------- Total 413 343 20 21 Retail Retail sales accounted for approximately 53% of total revenue in the secondhalf. Second half retail sales increased 24% underlying, 25% reported. Comparablestore sales increased 12%. Underlying average retail selling space increasedapproximately 14% in the half with the opening of six stores, a net eightconcessions and one outlet. The Spain retail conversion contributedapproximately eight percentage points of the reported gain. Currency movementsreduced the reported gain by approximately six percentage points. Retail sales in the fourth quarter increased 24% underlying, 25% reported.Comparable store sales increased 11% (against a 6% comparison) and underlyingaverage selling space increased 13% in the quarter. The Spain retail conversioncontributed approximately eight percentage points of the reported gain. Currencymovements reduced the reported gain by approximately seven percentage points.During the quarter, Burberry opened four stores, including Manchester (UK),Prague (Czech Republic) and Seville (Spain), and a net three concessions. In the fourth quarter, all regions achieved double-digit gains. In the US,performance was balanced between existing and new store contributions. Gains atexisting stores and concessions led excellent results in Continental Europeanmarkets. In their second spring season, womenswear concessions in Spaindemonstrated notable progress. The UK market, continuing to benefit from theGroup's increased investment during the year, produced strong gains. Momentum inAsia Pacific continued, led by Hong Kong and other Southeast Asian markets. Enthusiastic consumer response to spring merchandise following reduced end ofseason sale activity in January was a consistent factor underpinning performancein the fourth quarter. Outstanding outerwear sales, driven by updated styles andbalanced assortments, led gains. Luxury handbags and runway apparel continued toexperience excellent demand. Investment in design and development during theyear has been a key factor enabling this product progress. Operationally, theseinitiatives were supported by a more frequent flow of new merchandise to storesrelative to the comparative period and continued execution of a basicreplenishment programme. Wholesale Wholesale sales accounted for approximately 37% of total revenue in the secondhalf. The wholesale momentum of the first half gathered pace with the spring season.Wholesale sales increased 17% underlying in the second half with double-digitincreases in most regions. Currency movements reduced the reported gain byapproximately three percentage points. The US achieved excellent gains largelythrough increased penetration of core accounts. Sustained demand across themajority of markets, particularly Italy, Germany and Greece, drove strongperformance in Europe. Spain was broadly flat in the half as ongoing channeldynamics continued to weigh on results. Stimulated by demand in the travelretail sector, wholesale sales in Asia achieved strong gains. Initial sales ofglobal products in the Japanese market also contributed to growth. Emergingmarkets continued to show strength. Throughout the period, wholesale sales wereboosted by initial success of the basic replenishment programme introduced inthe third quarter and incremental orders associated with the new marketcalendar. In conjunction with local franchise partners, the Group opened two stores in thehalf. Licensing Licensing revenue in the half increased 15% on an underlying basis, 9% reported.Reported revenue was affected by adverse exchange rate movements relative to theprevious period. In Japan, strong volume gains among apparel and other ongoinglicences offset the effect of licence terminations, producing a good underlyinggain for the period. Excellent growth in product licence revenue was led byfragrances, which benefited from introduction of the new Burberry Summerfragrance, as well as the ongoing effect of the 2006 Burberry London fragrancelaunches. The first collection under Burberry's new global eyewear agreementlaunched during the period. Supported by an extensive marketing campaign on aplan to distribution in 15,000 doors worldwide, eyewear contributedsignificantly to product licence revenue in the half. Watches continued todemonstrate good progress in the period. Operational efficiency The Group completed the closure of a Welsh manufacturing facility in March 2007,following a proposal made in September 2006. In the 2006/07 financial year, thiswill result in a cash cost of approximately £4.8 million to cover an enhancedredundancy package and outplacement and training services for affectedemployees, and a non-cash expense of approximately £1.7million associated withasset write-offs. Expense savings associated with the elimination ofmanufacturing losses are expected to be approximately £1.5 million annually. Project Atlas continues on track. During the second half, key system deploymentswere implemented as scheduled, with minor changes to originally planned phasingin accordance with the pace of change in Burberry's business. Atlas expenses areexpected to total approximately £21 million for the 2006/07 financial year.Associated expense benefits are anticipated at approximately £6 million. 2007/08 outlook Burberry's current outlook for the 2007/08 financial year includes the followingfeatures: • Retail. An approximate 13% increase in average retail selling space. The majority of space expansion will be concentrated in the US and European markets. • Wholesale. Based upon orders received to date, first half wholesale sales are expected to achieve a mid-teens percentage underlying gain relative to the comparative period. • Licensing. Broadly flat underlying licensing revenue relative to 2006/07 - Licences in Japan are expected to produce a moderate underlying revenue gain for the year primarily as a result of continued apparel growth. - Growth in selected license product categories is expected to be offset by decreases at others, reflecting product cycle stages and channel transitions. - On a reported basis, yen-related exchange rate movements will reduce licensing revenue by approximately £7 million. • Project Atlas. In keeping with alterations to system implementation phasing required by changes in the business, Atlas expenses are budgeted at approximately £15 million for the financial year. In line with previous statements, the Group anticipates aggregate expense benefits associated with Project Atlas of approximately £20 million in the period. • Capital expenditures. Capital expenditures are budgeted at approximately £60 million. Burberry will release its preliminary results for the year ended 31 March 2007 on 24 May 2007. Enquiries: Burberry 020 7968 0577 Stacey Cartwright CFO Matt McEvoy Strategy and IR Brunswick 020 7404 5959 David Yelland Laura Cummings Robert Gardener The financial information contained in this Trading Update has not been audited. Certain statements made in this Trading Update are forward looking statements. Such statements are based on current expectations and are subject to a number of risks and uncertainties that could cause actual results to differ materially from any expected future results in forward looking statements. This announcement does not constitute an invitation to underwrite, subscribe for or otherwise acquire or dispose of any Burberry Group plc shares. Past performance is not a guide to future performance and persons needing advice should consult an independent financial adviser. 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