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financial
financial

Burberry 2Q Revenue Increases 7%

Outerwear, women's wear and the Burberry Icons accessories line drove.

financial/news

LONDON — Outerwear, women's wear and the new Burberry Icons accessories collection drove second-quarter revenue at the company up 7 percent to 257 million pounds, or $481.8 million, from 240 million pounds, or $428.6 million.

In the first half ended Sept. 30, revenues rose 10.4 percent to 392 million pounds, or $719.5 million, from 355 million pounds, or $651 million, due to rising retail sales, Burberry said in a trading statement Wednesday.

All figures have been converted at average exchange rates for the respective periods. The company will release full profit and sales figures for the first half on Nov. 14.

It was an action-packed day for Burberry — at least on the London Stock Exchange, where the company's share price rose 9.3 percent on heavy volume. Burberry closed at 5.52 pounds, or $10.27, up 8.2 percent from the previous day's close.

The spike in the share price came amid rumors that PPR, parent of Gucci Group, was set to make a bid for the London-based company. A Burberry spokesman declined to comment on the share fluctuations, but analysts in London said it wasn't PPR that was driving up the price.

"I think it was the hedge funds driving today's activity," said one London-based equities analyst. "A lot of people expected Burberry's numbers to be better today. When they came in lower than expected, the hedge funds panicked and talked up the price so they could sell quickly — and not lose so much money. I think tomorrow you'll see the price settle right back down."

Another London-based analyst said PPR has indicated in the past it wants to invest in watches, jewelry and smaller luxury brands — certainly not an apparel-driven company like Burberry. "The company that everyone thinks PPR will buy is Bulgari — not Burberry. Burberry is really apparel — not accessories — driven."

Meanwhile, PPR was under the microscope on Wednesday because it was conducting an investors' day in Florence, Italy, the seat of Gucci Group. The London analysts also speculated that company principals may have referred to future acquisitions, which could have sparked speculation.

Burberry said Wednesday that it was accelerating its retail expansion plans for the 2006-07 fiscal year. It will open nine retail stores, 10 concessions and four outlets, increasing selling space by 13 percent for the year.

Capital expenditure is expected to be about 50 million pounds, or $93 million, for the year.

Angela Ahrendts, Burberry's chief executive officer who took over in July, said there had been an "extraordinary" consumer response to Burberry Icons handbags across all markets.

The Burberry Icons collection was unveiled for fall to mark the 150th anniversary of the company. The line of accessories and outerwear features a mix of quilting, the brand's famed check, rivets and the Prorsum knight.

The handbag collection features exotic skins and quilted leather, along with D-ring buckles and leather-covered padlocks and rivet details. Prices range from $350 for a small bag to $2,125 for a larger one in an exotic skin.

Ahrendts said that, on the whole, performance in the first half was consistent with expectations for the full financial year.

In the first half, wholesale sales accounted for 46 percent of revenues in the period, followed by retail sales with 43 percent, with licensing income making up the remainder of revenues.

In the second quarter, however, wholesale sales decreased by 5.3 percent to 144 million pounds, or $269.9 million, from 152 million pounds, or $271.5 million, while retail sales in the same period rose 38 percent to 87 million pounds, or $163.1 million, from 63 million pounds, or $112.5 million.

Jacques-Franck Dossin of Goldman Sachs highlighted in a report Wednesday the divergent sales trend between wholesale and retail sales.

"It indicates that third parties are still skeptical on the brand's attractiveness, despite the improvement at the retail level. This seems to be driving management to further boost the retail expansion," he said.

"We fear this could result in an increase in the cost structure and could impact profitability, which could show as early as the first-half results in mid-November," his report added.