Profits up for Burberry as it aims to ‘unlock’ Japan

Luxury goods maker Burberry announced a healthy rise in profits in the wake of its chief executive’s departure.

Against a difficult backdrop in many of its markets, luxury goods outfit Burberry (LSE: BRBY) today reported adjusted pre-tax profits of £461m in its full-year results. That's an 8% increase on last year's £428m. Total revenues grew by 17% to £2.3bn.

Burberry hit the news last autumn when it announced that its CEO, Angela Ahrendts, had been poached by Apple. Earlier this month, Ahrendts finally departed, so today's full-year results are perhaps a final report on her tenure at Burberry.

Asia and China in particular is a critical market

Merryn Somerset Webb has written

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

High-profile corruption cases in China have focused the public's attention on some Communist party members' expensive tastes. And it's not just the rich and powerful that have shaken the market. Ordinary citizens have felt the pinch owing to China's slowing economy.

And yet, Burberry still sees China as critical to its success. Last year, it opened 18 new stores and concessions on the mainland, and plans to open between five and ten in 2015.

New boss focusing on Japan

Expiring licences there have allowed Burberry to take direct control of its operations in the world's second-largest luxury goods market. It currently has four stores and ten concessions in Japan, with more to follow.

Tapping in to a younger clientele

And that underscores another important point. With a younger clientele, Burberry is all too aware of the devastation the internet has wrought on traditional retail.

As a result, Burberry has decided to get with the trend by bringing technology into its shops, so now customers can place orders using iPads in-store. It has also formed partnerships with Amazon, Apple and Google and has made effective use of social media.

But regardless of technology changes, China is still crucial for Burberry's future. Many pundits fear a slowdown in China soon and that's why MoneyWeek editor John Stepek was cautious on the whole sector back in September 2012.

Today, investors have been largely unmoved by Burberry's profit announcement. The shares rose 1.7% in the morning, but have since fallen back to around £15.17. That puts them on a price/earnings (p/e) ratioof around 26. So, not cheap then.

Chris Carter
Wealth Editor, MoneyWeek

Chris Carter spent three glorious years reading English literature on the beautiful Welsh coast at Aberystwyth University. Graduating in 2005, he left for the University of York to specialise in Renaissance literature for his MA, before returning to his native Twickenham, in southwest London. He joined a Richmond-based recruitment company, where he worked with several clients, including the Queen’s bank, Coutts, as well as the super luxury, Dorchester-owned Coworth Park country house hotel, near Ascot in Berkshire.

Then, in 2011, Chris joined MoneyWeek. Initially working as part of the website production team, Chris soon rose to the lofty heights of wealth editor, overseeing MoneyWeek’s Spending It lifestyle section. Chris travels the globe in pursuit of his work, soaking up the local culture and sampling the very finest in cuisine, hotels and resorts for the magazine’s discerning readership. He also enjoys writing his fortnightly page on collectables, delving into the fascinating world of auctions and art, classic cars, coins, watches, wine and whisky investing.

You can follow Chris on Instagram.