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Like Burberry's iconic trenchcoat, the U.K. luxury group gives little away. It barely explained its mixed performance over the past year – which ended in March – or how things are going so far this year.
What Burberry did say in its results presentation on Tuesday was that overall sales for the year were up 8 per cent to £2-billion ($3.1-billion), while operating profits rose 14 per cent. Much of that was driven by Asia. Sales in China, which now makes up 13 per cent of the group total, were up a fifth. Indeed, like for like sales growth in China was up by double digits in the second half from a year earlier, from single-digit growth in the first half.
What we do know about margins is that underlying operating margins in retail and wholesale (which make up for nearly all of the top line apart from the 6 per cent of sales from licensing) increased 70 basis points over the year. This gain has been helped by a push to higher margin retail – now 71 per cent of sales, up from just a half when chief executive Angela Ahrendts took over in 2007. Gross margins were also supported by some foreign exchange gains and inventory management. Excluding its new beauty division, inventory was only up 7 per cent in constant currency terms versus retail sales growth of 12 per cent.
All of which sounds OK. But this is a company that issued a profit warning as recently as September. More detail is therefore needed to explain the volatility in same-store sales numbers, which dipped to just 1 per cent growth from a year earlier in its second quarter before ticking back up to 8 per cent. Burberry cited the new Chinese leadership and the crackdown on gift-giving, but this impacted peers over the past six months when Burberry's sales were recovering.
Burberry trades on 20 times forecast earnings, up from 15 times in late-September when same-store sales growth was suffering. Hugo Boss is on 17 times, with Mulberry on 29 times. For a stock that is hardly cheap, that leaves much to the imagination.
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