Burberry ups capex to expand retail space

Iconic British luxury brand Burberry reported solid and balanced growth in the year ended March 31st, with profits coming in marginally ahead of expectations.

Adjusted profit before tax (which excludes restructuring costs and other items) increased by 26% from £298m to £376m, slightly ahead of consensus forecasts of £374.7m. Meanwhile, the retail/wholesale operating margin improved by 80 basis points to 16.4%.

Revenue figures for the second half were already disclosed in the pre-close trading update last month and so won't come as much surprise to the market. Sales totalled £1,857m, up 24% from £1,501m the year before. Underlying growth, calculated at constant exchange rates, was 23%.

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Within retail, all regions and product divisions showed double-digit growth during the year with total retail revenues rising 32% to £1,270.3m. However, as previously indicated, like-for-like growth (comparable store sales) slowed from 16% in the first half to 12% in the second, resulting in a 14% increase year-on-year.

Burberry opened 23 mainline stores - including the first flagship stores in Hong Kong, Paris and Taipei - and 25 concessions during the 2011/12 year, closing 10 and 16, respectively.

The full-year dividend was raised from 20p to 25p, slightly ahead of the 24.58p consensus estimate.

"While we remain vigilant about the external environment, we will continue to invest in front-end opportunities within our brand, digital and retail strategies, to drive sustained, profitable growth and enduring customer engagement over the long term," said Chief Executive Officer Angela Ahrendts.

REINVESTING FOR THE FUTURE

A net 15 mainline stores are planned for the current year and capital expenditure should increase from £153m to £180-200m as retail space is expected to grow by 12-14%.

Analysts at brokerage Nomura said this morning that it would maintain its current-year forecasts following the statement and reiterated its buy recommendation for the stock. "Strong returns and pricing power give [Burberry the] confidence to accelerate investment," they said.

The firm said that the phasing of revenue and investment is expected to lead to lower operating margins in retail and wholesale in the first half of this year (ending September 2012). For the full year 2012/13 though, it expects "modest improvement" in margin.

Meanwhile, licensing revenues are expected to be flat this year, as growth in global product licenses is offset by the planned termination and downsizing of Japanese non-apparel licences.

BC