What’s new
■ Robust growth in retail and wholesale
■ Spanish unit's restructuring completed
■ Continued expansion anticipated
Once again luxury goods group Burberry has dazzled investors by revealing impressive growth with its second quarter trading update this month. Accordingly, management think adjusted pre-tax profit for the year to end-March 2011 will be "around the top end of market expectations".
Specifically, Burberry's retail operation – which generated nearly 70 per cent of total revenue – saw like-for-like sales soar by 13 per cent. In the wholesale business, and factoring-in the Chinese operation, underlying sales grew 14 per cent. Progress has been made at the troubled Spanish business, too, which was hit especially hard in the recession there. The restructuring effort in Spain, which began in February 2010, has now been completed and the retailer's global collection is being introduced from the spring/summer of this year.
That momentum shows few signs of slipping, either. Indeed, management is planning for a 12-13 per cent increase in average selling space for 2011-12 and anticipates mid-teens percentage sales growth in licensing revenue and wholesale revenue. "While the luxury industry faces global challenges in the year ahead, we remain confident in our team's ability to outperform, underpinned by the consistent execution of our key strategies," commented chief executive Angela Ahrendts.
BNP Paribas says…
Fairly valued. Burberry's second half sales were 4.4 per cent ahead of analysts' consensus estimates, but the company has a history of over-delivering - so this isn't necessarily a huge surprise. The retail operation saw strong underlying sales growth and the retail average selling price increased during the period. While the wholesale business was ahead of the company's guidance of high mid-teens growth. The shares trade at a premium to its luxury good peers, on 24.3 times 2011 earnings estimate of 51.5p and are fairly valued with any acquisition premium already priced-in.
Nomura Equity Research…
Neutral. Based on a combination of a discounted cash flow approach and a target multiple methodology – which uses a target multiple of 12 times 2012 earnings estimates – we have raised our price target from 1200p to 1285p. Burberry's second half performance was impressive and the benefits of supply chain, brand and product investment were heavily evident in the underlying sales performance. Expect end-March 2011 adjusted EPS of 49.7p.
