Burberry : First Half Trading Update

Burberry today announces revenue of £1.1bn with 14% underlying growth, reflecting a strong performance across all regions and continued digital growth. September also saw the successful launch of the My Burberry fragrance.

Highlights for the six months to 30 September 2014 include

• 10% comparable sales growth
  - Double-digit comparable sales growth in Asia Pacific and Americas; mid single-digit growth in EMEIA
  - Continued digital outperformance in all regions
• Balanced growth across major product divisions
  - Key drivers included rainwear, womens Prorsum, leather bags and mens tailoring
  

• Excluding Beauty, up 5% underlying
  - Boosted by earlier deliveries and in-season orders in H1
  - More cautious demand from travel retail and European customers in H2
  
• Beauty up 55% underlying, consistent with full year guidance of up about 25%
  

• Nine mainline stores opened, including six in airports
  
• Marketing focused on core heritage products
• Successful launch of the My Burberry fragrance, including most personalised and interactive campaign to date

Christopher Bailey, Chief Creative and Chief Executive Officer, commented:

"This has been a strong first half for Burberry, with sales growth of 14% reflecting our ongoing brand and business momentum. Looking ahead, while mindful of the more difficult external environment, we have never been better prepared internally for the all-important festive periods, with our teams intensely focused on delivering outstanding products and experiences, alongside continued investment to drive productivity and profitable growth over the long term."

In the first half, revenue at Burberry increased by 14% underlying, balanced across regions and major product divisions. Retail comparable sales growth increased by 10%. The first quarter's 12% comparable sales growth was in line with our expectations but slowed in the second quarter to 8%, affected by external factors in some markets.

Looking ahead, while the negative impact of FX on full year reported profit has recently reduced, this benefit will be partly offset by the more difficult external environment. This is expected to result in slight downward pressure on the retail/wholesale margin, as we continue to invest in key initiatives to drive long-term profitable growth. Our goal to realise further margin improvement over time remains unchanged.

Retail sales in the first half increased by 15% underlying, up 8% at reported FX. Of this 15% underlying growth, comparable sales growth was 10% (Q1: 12%; Q2: 8%), with the balance from new space.

In mainline retail, comparable sales growth was relatively balanced between womens, mens and accessories, between fashion and replenishment, and between average selling price and volume. Product highlights included rainwear, driven by the relaunch of the heritage trench coat, soft accessories, womens Prorsum and solid leather bags and continued outperformance from mens tailoring.

By region in the first half, there was double-digit comparable sales growth in Asia Pacific and the Americas and mid single-digit growth in EMEIA. In the second quarter, Asia Pacific saw some softening in growth from Chinese consumers both at home and when travelling; the Americas delivered growth similar to last year and EMEIA saw some improvement from the first quarter. Combined, this delivered 8% comparable sales growth in the second quarter, balanced across the regions. Digital outperformed in all regions in the half.

During the first half, we opened nine mainline stores and closed eight. Six airport stores were opened in Hong Kong, London Heathrow, Barcelona, Madrid, Milan Malpensa and Rome.

Wholesale revenue in the first half increased by 13% underlying, up 8% at reported FX.

Excluding Beauty, wholesale revenue at £242m increased by 5% underlying, unchanged at reported FX. This was ahead of guidance of broadly unchanged year-on-year, due to the rephasing of shipments into the second quarter from the third quarter and higher than expected in-season orders.

Excluding the impact of ongoing strategic initiatives, such as conversion from wholesale to retail and account rationalisation, underlying growth would have been about 10% in the first half. This was led by strong growth in Asia Pacific, specifically travel retail and mid single-digit growth in both the Americas and EMEIA.

In Beauty, September saw the launch of My Burberry, the new womens fragrance, inspired by the trench coat and with our most personalised and interactive marketing campaign to date. This launch contributed to an increase in Beauty wholesale revenue of 55% underlying (up 47% at reported FX). This performance was also against a weak first half last year that saw disruption during the transition from licence to direct operation.

In the first half, licensing revenue declined by 3% underlying (down 18% at reported FX), consistent with full year guidance. Royalty income from Japan was largely unchanged year-on-year, while the global product licences (watches and eyewear) combined were down, reflecting phasing and the rationalisation and elevation of watch distribution.

Retail:In FY 2015, net new space is still expected to contribute low to mid single-digit percentage growth to total retail revenue, now through a combination of about 20 mainline store openings and about 20 closures during the year.

Wholesale:Excluding Beauty, we expect wholesale revenue at constant exchange rates to be down by a mid single-digit percentage in the six months to 31 March 2015 (2014: £240m), with a more cautious approach from customers selling to the European consumer and in Asian travel retail markets. For Beauty, the fifth product division, wholesale revenue is still expected to grow by about 25% at constant exchange rates in FY 2015.

Retail/wholesale profit:If exchange rates* remain at current levels, the full impact on reported retail/wholesale profit in FY 2015 will be material. As an indication, rebasing FY 2014 retail/wholesale profit for current effective exchange rates would now reduce reported profit by about £25m (all in H1) and full year adjusted operating margin from 17.5% to around 17%.

Licensing:For FY 2015, we continue to expect broadly unchanged revenue at constant exchange rates in both Japan and global product licences. At current exchange rates*, reported licensing revenue in FY 2015 will be reduced by about £10m given the movement in the sterling/yen rate.

• Burberry is a global luxury brand with a distinctive British heritage, core outerwear and large leather goods base and some of the most recognised icons in the world.
  
• Burberry designs and sources apparel, accessories and beauty, selling through a diversified network of retail (including digital), wholesale and licensing channels worldwide.
  
• Burberry has five strategic themes to underpin its growth: leverage the franchise; intensify accessories; accelerate retail-led growth; invest in under-penetrated markets; and pursue operational excellence.
  
• At 30 September 2014, Burberry globally had 216 retail stores, 224 concessions, 55 outlets and 66 franchise stores.
  
• Burberry, which is headquartered in London, was founded in 1856. It is listed on the London Stock Exchange (BRBY.L) and is a constituent of the FTSE 100 index. ADR symbol OTC:BURBY.
  
• BURBERRY, the Equestrian Knight Device and the Burberry Check are trademarks belonging to Burberry which are registered and enforced worldwide.
  

View the First Half Trading Update in PDF format