In the money: Burberry continues to eye growth in Asia
Despite seeing a slowdown in first quarter sales growth in a "more challenging external environment," luxury fashion and accessories brand Burberry is focusing on the positives - including "enormous" opportunities in China, higher selling prices and British-made goods.
The fashion group "delivered a robust first-quarter with continued balance by channel, region and product," Burberry's chief financial officer Stacey Cartwright told analysts during a conference call today (11 July).
Total revenue in the three months to 30 June was GBP408m (US$634.7m), 11% higher than a year earlier.
Retail revenue jumped 14% to GBP280m during the quarter, while comparable store sales increased 6%, led by the company's performance in the UK, France, Germany and Greater China.
Cartwright said the company continues to see an "enormous opportunity" in China, where it booked mid-teens growth in like-for-like sales and announced plans to open larger stores.
"We don't see any danger of us maxing out in China. We think there is enormous momentum in the Burberry brand and lots more to go for there," she said
While Burberry currently has 63 stores in China, "the vast majority of those we acquired from our franchisee nearly years ago, [with a] typical floor plate of only 2,000 sq ft per store. We are really looking at open stores with minimum of 3,500-4,000 sq ft."
Its goal is to increase its average retail selling space by 12-14% in the year to 31 March, with the majority of new space focused on Asia - with China building up to as many as 100 larger format stores.
"Asia more generally carries the lion's share of the allocation, across the various regions," she said.
As well as adding new stores, retail sales have been boosted by a further increase in average selling prices in its mainline collections, driven by product innovation and getting rid of cheaper opening price point products in core outerwear and accessories.
"It's migrating the consumer up through the price points into the higher quality," Cartwright said, adding that the entry level price for a trenchcoat is now around GBP1,000.
"It's absolutely about the brand, the elevation of the brand and the imagery and making sure that as we turn the notch up on the luxury positioning of Burberry, that we keep the product innovation fresh and we elevate the offering."
Key here is a focus on products that are European made rather than sourced in Asia. "The leathers and, in the case of outerwear, the iconic trench coats that we make in our own factory in the north of England rather than product that's made in Asia."
A "solid performance" in a tough economic climate, is how Conlumino analyst Simon Chinn views the figures.
"There are positive signs in the strong performance of its men's wear range, on the back of new efforts in tailoring and accessories. Burberry has also reaped the benefits of higher average price points driven by product innovation, which bodes well on the product front going forward."
Investec analyst Bethany Hocking also points out that the first quarter is the smallest quarter for Burberry and is against the toughest comp this year.
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