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Chequered performance from Burberry

Created:

17 November 2009

Written by:

John Hughman

Burberry recruited Harry Potter star Emma Watson as the new face of the brand in June and, after these lacklustre results, management must be hoping that some of her magic will start to rub off on its sales.

Although the group reported that comparable store sales were up 2 per cent in the half - and had accelerated to 5 per cent in the second quarter - that wasn't enough to stave off a 12 per cent decline in underlying operating profit to £86.3m. In fact, the performance was even worse if the benefit of a gusty foreign exchange tailwind was removed, with overall sales down 5 per cent and operating profit down 19 per cent on a constant currency basis.

A restructuring charge of £4.2m put a further dent in profits, a large chunk of which related to the emergency surgery on its Spanish business - the group slashed over 300 jobs in Spain after underlying sales there collapsed 37 per cent. The recession also took its toll on wholesale revenues, which slumped by 23 per cent on an adjusted basis as customers, in the words of chief executive Angela Ahrendts: "procured cautiously".

However, demand for luxury goods remained strong in Burberry's Asia Pacific business, where underlying revenues climbed 3 per cent to £117m. Burberry noted a particularly strong performance in Korea and an acceleration in the second half in Hong Kong, where it opened new concept stores. Its franchise partners in China opened seven stores in the period and Ms Ahrendts said that the group is targeting 100 stores in the country from the current 44 as part of its plans to add 10 per cent in new space a year.

Meanwhile, the group swung to a net cash position thanks largely to a 40 per cent reduction in inventories. However, Ms Ahrendts said that improvements to its supply chain meant that Burberry's ability to respond to customers was better than ever.

Broker Evolution Securities expects underlying full-year pre-tax profit of £189m and EPS of 30.4p (2009: £175m/30.2p).

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