Luxury fashion firm Burberry has unveiled ambitious store expansion plans in the US and Europe on the back of strong first-half sales growth.

The company announced a 15% dividend increase following a 10% rise in underlying sales. Total turnover was up 11% to GBP392m (US$739.39m) from GBP354.9m.

The strongest sales growth was seen at its stores in the Russian, Eastern Europe, Middle Eastern and South American markets, which leapt 39% to GBP8.9m.

The company also said its line of quilted Manor handbags, which were modelled by Kate Moss and sell for about GBP800, have been a massive success. Luxury handbags now make up 30% of handbag sales compared with 10% last year, said CEO Angela Ahrendts.

However, pre-tax profits were down from GBP78.1m to GBP73.4m because of costs associated with its Project Atlas initiative to upgrade its supply chain, inventory and delivery systems.

Shares in the firm, meanwhile, hit a record high after it said it would grow store space by 14% in the next six months.

The company is keen to strengthen its hold on the global luxury market, it said during a conference call, mainly through retail-led growth and directly-operated stores.

Burberry will launch pilot 'Icon Stores' next year, which will contain a "smaller, iconic assortment and a heavier non-apparel concentration", Ahrendts told investors. The company will initially open one in Europe and one in the US and believes they could be "highly effective" as second or third stores in large markets or main stores in small markets.

Moreover, the firm sees "no shortage of potential new store opportunities", Ahrendts said, adding: "We see great growth in the largely unpenetrated US, fast-growing Asian markets and emerging economies.

"In the US alone we should double our business," she said.

In markets such as the US, the company will also be expanding through the wholesale channel.

Earlier this year Burberry said it plans to increase its market presence within the US, and said it was looking at possible locations including Kansas, Indiana and Ohio.

While its biggest markets in terms of revenues - Europe and Asia - have in the past made up 63% of total sales, the US contributed just 27% of its total.

"Franchise is dominant in emerging markets", Ahrendts continued, adding that sales in those markets could triple in the coming five years.

"Many could be integrated into retail operations as markets mature," she said.

Burberry also sees the UK as under penetrated and admits the market has been challenging in recent years.

It has already made store improvements, opened an e-commerce site ten days ago and now plans to open a Manchester store early next year and to renovate its store in London's Knightsbridge in the latter half of next year.

Meanwhile, shoppers seem to have got over the unfortunate connotations the brand unwittingly gained after its well-known check pattern became a prime target for counterfeiters.

CFO Stacey Cartwright said Burberry plans to use the pull of its most exclusive 'Icons' range of accessories to boost ticket price by 10%-15% during the next couple of years.
It will also increase the frequency of product flow and will set up a replenishment programme.

Holding company GUS demerged Burberry Group in December 2005, transferring its 65% stake in the company to Burberry shareholders.

Further change came this year when former CEO Rose Marie Bravo - known for turning around the fortunes of the once-jaded label - left to be replaced by Ahrendts, a former executive director at Liz Claiborne.

By Rebecca Danton.