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Greenback grates on Burberry

Burberry made good progress last year against a difficult market, but currency volatility continues to drag sentiment on the shares.
May 20, 2015

Demand for Burberry's (BRBY) iconic trenchcoat and cashmere scarves, as well as bumper digital sales, lifted retail revenues by 14 per cent at the fashion house (9 per cent on a like-for-like basis). However, exchange rate movements wiped £38m off the group's reported earnings, leaving adjusted pre-tax profits 1 per cent lower.

IC TIP: Hold at 1738p

That reflects the movement of the US dollar - 40 per cent of Burberry's revenues are greenback-denominated - against sterling. Beneficial movements in exchange rates this year means chief financial officer Carol Fairweather expects a tailwind of £10m in reported profit across retail and wholesale, on current exchange rates. But that is £40m lower than the guidance given in April.

Currency aside, underlying trading was encouraging. There was double-digit sales growth across the Americas, Europe, Middle East, India and Africa, while Asia-Pacific reported mid-single digit growth, dampened by disruption in Hong Kong - a popular shopping destination for Chinese consumers. Ms Fairweather says HK remains challenging, with orders "significantly down", while chief executive Christopher Bailey says increased uncertainty in some markets means 2016 will be about tight cost control and selective investment in key markets and channels. Two-thirds of this year's £180m capital spending budget will be biased towards Asia-Pacific.

Nomura has downgraded adjusted pre-tax profit for the current year by 5 per cent to £472m, giving EPS of 80p, up from £456m and 77p in full year 2015.

BURBERRY (BRBY)
ORD PRICE:1,738pMARKET VALUE:£7.7bn
TOUCH:1,736-1,739p12-MONTH HIGH:1,929pLOW:1,388p
DIVIDEND YIELD:2.0%PE RATIO:23
NET ASSET VALUE:315pNET CASH:£150m

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20111.5029649.320
20121.8636660.425
20132.0035158.329
20142.3344473.632
20152.5244576.435.2
% change+8-+4+10

Ex-div: 2 Jul

Payment: 31 Jul