Burberry First-Half Profits Slip

Burberry Group profits declined 2.7 percent in the first half to $96.7 million, mainly due to costs from its Project Atlas information technology overhaul.

J.P. Morgan said in its research report Tuesday that Burberry's overall results were better than expected, while Morgan Stanley said there were "no surprises" in Tuesday's figures.

With regard to retail in the second half, Burberry said its store-opening program is on track. Average retail selling space is expected to increase by approximately 10 percent in the second half, and a total of 9 percent for the full year, excluding the effect of the newly acquired Taiwan stores.

Average selling space increased by approximately 8 percent in the first half.

Licensing revenue in the second half will remain broadly flat against the first half. As reported, the company is re-structuring its business in Japan. Burberry is trying to enhance its brand positioning, which is restraining volume growth.

Burberry's transition to new eyewear licensee Luxottica also will have an impact on revenue growth in the second half, as the new line won't be in stores until fall 2006.

Operating profit in the first half declined 2.3 percent to 75.8 million pounds, or $138.1 million, from 77.6 million pounds, or $140.8 million, due to 3 million pounds, or $5.5 million, in costs from the Project Atlas program.

Stripping out those costs, operating profit would have risen 1.5 percent to 78.8 million pounds, or $143.6 million.

In May, Burberry announced Project Atlas, a major infrastructure initiative aimed at revamping its wholesale, retail and finance systems. It will impact sectors of the business including supply chain, shipping, merchandising and support services.

Burberry expects to invest approximately $91.5 million over three years in Project Atlas. It plans to reap annual benefits of $36.6 million by year three, and that figure is expected to grow by years four and five.

As reported, first-half retail sales showed the highest growth rate, rising 11.7 percent to 124 million pounds, or $225.9 million, from 111 million pounds, or $201.4 million.

Wholesale sales dipped 3 percent to 191 million pounds, or $348 million, from 197 million pounds, or $357.4 million, and licensing revenue rose 2.6 percent in the period to 40 million pounds, or $72.9 million, from 39 million pounds, or $70.7 million.

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