Burberry cashing in on luxury boom
By Mark Potter |
May 27, 2011, Friday
|
Print Edition
Print Edition
BURBERRY is stepping up spending on new stores and upgrading existing ones to cash in on a boom in demand for luxury goods, it said yesterday, as it met forecasts with a 39 percent leap in full-year profit.
The British maker of raincoats and handbags, best known for its camel, red and black check pattern, said the investment would limit growth in profit margins in the coming year, sparking a retreat in its shares after recent strong gains.
Chief Executive Angela Ahrendts said she was sure the spending would pay back in what she described as very strong recovery in demand for luxury goods, led by Chinese shoppers and tourists.
"It is time to get our retail footprint up to par with consumers' perception of the brand," she told reporters, adding that Burberry had spent the past five years improving the "back end" of the business, such as its supply chain and technology.
The 155-year-old group said it would invest 180-200 million pounds (US$292-325 million) in 2011/12, up from 108 million in the year to the end of March.
About half will go on new shops, including 20 in fast-growing emerging markets such as Brazil, India and Mexico, with the rest spent on upgrading and expanding shops in flagship cities such as Chicago, Milan, Hong Kong and Paris, as well as doubling selling space in the group's home city of London.
Burberry will spend 20 million pounds extending its store in London's prestigious Knightsbridge district, as well as relocating and extending its store on major shopping thoroughfare Regent Street.
"This is our headquarters. We should shine here greater than anywhere in the world," Ahrendts said.
Burberry said the investment would hit operating profit margins in the first half of this financial year and the full-year increase would be "modest" after three years of strong gains to a record high of 15.6 percent in 2011/12.
That knocked back Burberry's shares, which have risen more than sevenfold in recent years as the group staged a stunning recovery from the global economic downturn and attracted takeover target speculation it could become a takeover target.
In London yesterday morning, Burberry shares were down 3.7 percent at 1,271 pence, the biggest fall on the FTSE-100 index. Citi analysts said profit forecasts for 2011/12 might edge down from the current consensus of around 364 million pounds.
However, Nomura's Fraser Ramzan said the investment could spur growth. "Any volatility inspired by the company's decision to accelerate investment in its business could provide an interesting opportunity in the shares," he said.
The global luxury market has continued last year's recovery, defying fears it might be hit by austerity measures in Europe and steps to cool fast-growing emerging economies.
The British maker of raincoats and handbags, best known for its camel, red and black check pattern, said the investment would limit growth in profit margins in the coming year, sparking a retreat in its shares after recent strong gains.
Chief Executive Angela Ahrendts said she was sure the spending would pay back in what she described as very strong recovery in demand for luxury goods, led by Chinese shoppers and tourists.
"It is time to get our retail footprint up to par with consumers' perception of the brand," she told reporters, adding that Burberry had spent the past five years improving the "back end" of the business, such as its supply chain and technology.
The 155-year-old group said it would invest 180-200 million pounds (US$292-325 million) in 2011/12, up from 108 million in the year to the end of March.
About half will go on new shops, including 20 in fast-growing emerging markets such as Brazil, India and Mexico, with the rest spent on upgrading and expanding shops in flagship cities such as Chicago, Milan, Hong Kong and Paris, as well as doubling selling space in the group's home city of London.
Burberry will spend 20 million pounds extending its store in London's prestigious Knightsbridge district, as well as relocating and extending its store on major shopping thoroughfare Regent Street.
"This is our headquarters. We should shine here greater than anywhere in the world," Ahrendts said.
Burberry said the investment would hit operating profit margins in the first half of this financial year and the full-year increase would be "modest" after three years of strong gains to a record high of 15.6 percent in 2011/12.
That knocked back Burberry's shares, which have risen more than sevenfold in recent years as the group staged a stunning recovery from the global economic downturn and attracted takeover target speculation it could become a takeover target.
In London yesterday morning, Burberry shares were down 3.7 percent at 1,271 pence, the biggest fall on the FTSE-100 index. Citi analysts said profit forecasts for 2011/12 might edge down from the current consensus of around 364 million pounds.
However, Nomura's Fraser Ramzan said the investment could spur growth. "Any volatility inspired by the company's decision to accelerate investment in its business could provide an interesting opportunity in the shares," he said.
The global luxury market has continued last year's recovery, defying fears it might be hit by austerity measures in Europe and steps to cool fast-growing emerging economies.
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