UK-based luxury goods manufacturer Burberry Group Plc (BRBY.L) reported Tuesday a decline in pre-tax profit for the first half of fiscal 2010, reflecting higher operating expenses, despite growth in revenues. The company increased its interim dividend by 4% and backed its second half and fiscal 2010 segmental forecast.
Burberry's first-half profit before taxation declined to GBP 78.4 million from GBP 97 million in the same period a year ago.
The latest first-half results included restructuring costs of GBP 4.2 million relating to the company's cost efficiency program, while prior year results included credit of GBP 1.7 million representing negative goodwill on the formation of the Burberry Middle East joint venture.
On an adjusted basis, the company's pre-tax profit was GBP 82.6 million, including a GBP 6.7 million benefit from exchange rates, while prior year's adjusted pre-tax profit was GBP 95.3 million.
On an after-tax basis, profit for the period attributable to equityholders of the company was GBP 56.8 million or 12.9 pence per share, lower than last year's GBP 74.8 million or 17.0 pence per share.
Adjusted attributable profit for the period fell to GBP 59.8 million from GBP 67.2 million last year, and adjusted earnings per share declined to 13.6 pence from 15.3 pence a year ago.
The company's six-month revenue, as announced on October 14, rose 6% to GBP 572.4 million from GBP 539.1 million in the prior year period. Meanwhile, revenue on an underlying basis, excluding a GBP 60 million benefit from exchange rates, dropped 5% from last year.
In the retail segment, total sales for the period was GBP 311.6 million, up 27% on a reported basis and up 14% on underlying basis, attributed to new space and Burberry Middle East. Retail sales accounted for 54% of total revenue in the first half, up from 45% a year ago. First-half comparable store sales growth was 2%, or up 4% excluding Spain, and the second-quarter comparable store sales growth was 5%.
Wholesale revenue for the first half declined 15% year-over-year to GBP 216.1 million, and the drop was 23% on an underlying basis, which was slightly ahead of guidance of about 25% drop given in April 2009. The company noted that the decline in underlying revenues reflected the company's certain actions, including the closure of Thomas Burberry as part of the global cost efficiency program, the continued planned rationalization of many small specialty accounts in Europe and the conversion of Burberry Middle East from wholesale to retail. Lower shipments of the Autumn/Winter 2009 collections in all regions of the world also reduced the revenues.
During the first half, total retail/wholesale revenue increased 6% to GBP 527.7 million from GBP 499.4 million a year ago, while underlying revenues fell 5%. Of this, Womenswear revenues were nearly flat, while revenues from Menswear dropped 4%. Non-apparel revenues climbed 16%, and Childrenswear/other revenues grew 55%.
On a geographical basis, retail/wholesale revenue in Europe, excluding Spain, increased 10% on a reported basis and 2% on an underlying basis, and accounted for 37% of revenue. Revenues in Spain was down 31% on reported and 37% on underlying basis, with over half of the decline reflecting the closure of Thomas Burberry. In Americas, reported revenues rose 8%, while underlying revenues fell 9%, in a period impacted by logistics issues associated with SAP conversion. Revenue in Asia Pacific increased 14% on a reported basis and 3% on an underlying basis.
Total licensing revenue in the first half grew 13% from last year to GBP 44.7 million, reflecting primarily the strength of the yen, while revenues declined 6% on an underlying basis.
Burberry's first-half gross margin increased 6% to GBP 342.7 million from GBP 323.1 million last year, while operating profit fell 18% to GBP 82.1 million from GBP 100.1 million a year ago, hurt by higher net operating expenses to GBP 260.6 million from GBP 223 million last year. Adjusted operating profit for the period dropped 12% to GBP 86.3 million from GBP 98.4 million last year.
Commenting on the results, Angela Ahrendts, Chief Executive Officer, stated, "Burberry delivered a solid first half performance, reflecting the strength of the brand, business and team. We enter the second half confident in our core strategies, capitalising on product, region, channel and operational opportunities."
Burberry said its Board has increased its interim dividend by 4% to 3.50 pence per share from last year's 3.35 pence, to reflect strong financial position and momentum in business. The interim dividend will be paid on February 4, 2010 to Shareholders on the Register at the close of business on January 8, 2010.
Further, Burberry backed its forecast for the first-half and fiscal 2010. In the wholesale segment, the company continues to expect second-half revenue to be down by around 15% at constant currency, mainly reflecting its own actions, including the second half impact of closing Thomas Burberry and certain specialty accounts in Europe, as well as the ongoing weakness in Spain. Burberry previously had noted that US wholesale, an under-penetrated market for the company, shows relative strength in the second half.
For fiscal 2010, Burberry still expects reported licensing revenue to grow year-on-year due to currency benefits, while underlying licensing revenue is still expected to decline by 5% to 10%, reflecting the positive impact of the amendment to the Japanese apparel licence agreement.
The company continues to expect full-year retail average selling space to increase by 8% to 10%, including a 1.5% negative impact from stores closed as part of the global cost efficiency program. Burberry said it plans to open around 15 additional mainline stores in the full year, biased towards Asia and the Americas. Average selling space increased by 12% in the first half, with about 6% to 7% planned for the second half. On the London Stock Exchange, BRBY.L is currently trading at 590.00 pence, down 10.00 pence or 1.67%, on a volume of 750 thousand shares.
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