London-based luxury goods manufacturer Burberry Group Plc (BRBY.L), in a trading update, Tuesday, reported a 15% increase in total sales for the third quarter, driven by "good performances from outerwear and non-apparel divisions." Given the third quarter performance, the company currently expects adjusted pre-tax profit for fiscal 2010 to be towards the top end of market view.
For the quarter, total sales was GBP 380 million, up 15% from GBP 329 million last year. On an underlying basis, total sales increased 12% year over year.
Retail segment sales, which accounted for around two-thirds of total revenues in the quarter, grew 17% to GBP 249 million from GBP 213 million in the previous year, while sales rose 16% on an underlying basis. The company noted that new space contributed 6% to sales growth.
Comparable store sales increased 10%, reflecting growth in all regions, especially the continued double-digit growth in Europe and Asia Pacific, led by the UK and Hong Kong. Burberry added that comparable store sales in the Americas improved to low single-digit growth, albeit against weak comparatives last year, while Spain grew marginally.
Burberry recorded good performances from outerwear and non-apparel divisions during the quarter. The company added that digital media initiatives helped to drive traffic, and the Burberry Experience sales and service programme helped to drive conversion. With strong full price sell-through of the Autumn/Winter collections and reduced procurement, inventory levels at December 31 were significantly lower year-on-year. Burberry said this would reduce clearance activity in the current fourth quarter compared to last year, impacting revenue but benefiting gross margin.
Sales in the wholesale division rose 11% to GBP 105 million from GBP 95 million a year earlier, and on an underlying-basis, sales increased 5%, helped by earlier shipments than in the same period last year, reflecting the company's strategy of delivering new ranges more frequently to wholesale customers.
Licensing sales were GBP 26 million, up 22% from GBP 21 million in the prior year, benefiting primarily from the stronger yen, which is largely hedged 12 months forward. On an underlying basis, sales dropped 3%, impacted by timing differences of royalty receipts.
Region-wise, retail/wholesale revenues from Europe, excluding Spain, increased 28% to GBP 112 million from GBP 88 million in the comparable period. Retail/wholesale revenues from Spain grew 5% to GBP 22 million from GBP 21 million last year. Retail/wholesale revenues from Americas were GBP 115 million, up 4% to GBP 111 million a year ago. Asia-Pacific retail/wholesale revenues rose 20% to GBP 89 million from GBP 74 million in the previous year. Retail/wholesale revenues from rest of world were GBP 16 million, 15% higher than GBP 14 million a year ago.
Burberry noted that five mainline stores were opened during the quarter, including flagship in Toronto and standalone Burberry London and Burberry Brit stores in New York, and six franchise stores opened in Emerging Markets. The company added that it is currently preparing for April roll-out of SAP to Korea and European distribution hub conversion.
As at December 31, Burberry had 127 retail stores, 255 concessions, 47 outlets and 96 franchise stores, with e-commerce in over 25 countries.
Looking ahead, for the second half, Burberry expects wholesale revenue to be down in the range of 10% to 12% at constant currency, compared to previous guidance of down by around 15%, impacted negatively by closing certain specialty accounts in Europe and further significant weakness in Spain. Excluding these factors, the company expects demand for the global collection to be marginally positive year-on-year, driven by improved shipping and higher re-orders than anticipated.
The company added that average selling space for the second half is planned to increase by about 6% year-on-year, giving a full year increase in the range of 8% to 10%, in line with previous guidance.
Looking ahead, for the full year, Burberry continues to expect underlying licensing revenues to decline in the range of 5% to 10%, reflecting weak demand in Japan and the planned termination of menswear licences. However, the company sees a growth in reported revenues, reflecting currency benefits.
Chief Executive Officer Angela Ahrendts said, "While continuing to plan cautiously for 2010/11, we are confident that our strategies by product, region and channel - underpinned by operational efficiencies - will drive profitable growth."
BRBY is currently trading at 622.50 pence per share, 3.84%, on the London Stock Exchange.
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