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Tech Revamp Hits Burberry Profits

Profits at Burberry Group dipped 4.9 percent last year as a result of costs related to the brand's technology overhaul, Project Atlas.

Rose Marie Bravo

Rose Marie Bravo

Photo By WWD Staff

LONDON — Profits at Burberry Group plc dipped 4.9 percent last year as a result of costs related to the brand's technology overhaul, Project Atlas.

Profits for the fiscal year ended March 31 fell to 106.4 million pounds, or $190.1 million, from 111.9 million pounds, or $206.6 million. Currency conversions were made at average exchange rates for the respective periods.

Before the Atlas-related costs, operating profits rose 2.7 percent to 165.6 million pounds, or $295.8 million, from 161.3 million pounds, or $297.8 million.

Turnover rose 3.8 percent to 742.9 million pounds, or $1.33 billion, from 715.5 million pounds, or $1.32 billion. The turnover figure, which had been released last month, has been slightly adjusted to reflect a change in the company's foreign currency translation method. From now on, the company will convert financial results every 30 days, based upon average exchange rates for each month.

"In a year of transition and investment, the group achieved solid financial results," said chief executive Rose Marie Bravo in a statement Thursday. "With a strong spring season underway, we enter our 150th year with confidence in Burberry's future."

It was Bravo's last round of financial results before she makes way for Burberry's new chief executive, Angela Ahrendts, in July.

Stacey Cartwright, chief financial officer, said the latest numbers were on track. "Underlying profit for the year was actually up 5 percent, and the decline was just due to costs linked to the preparation and initiation of Project Atlas," said Cartwright, who has been spearheading the project.

"By October, we're going to have global sales and stock transparency — which we've never had before," she added. "We'll be able to have early visibility on sales and stock trends, and frankly, I can't wait."

As reported, Project Atlas foresees investment of some $94 million during the first three years, generating cost savings in excess of $37.4 million annually by the project's third year in 2007-2008.

In terms of guidance for the current fiscal year, Burberry said it was expecting a "significant" negative exchange rate comparison, due to the weakening dollar. Atlas expenses are expected to be approximately 19 million pounds, or $36 million at current exchange, with savings and benefits amounting to 6 million pounds, or $11.2 million, in the current year. Licensing revenue is expected to be broadly flat, while first-half wholesale sales are up a low-single-digit percentage.

Burberry's sales increase last year was due in part to strong retail sales in the U.S., where the brand opened seven stores, and in Asia-Pacific, where company-owned stores in China and Taiwan performed well. The statement said new, franchised stores in emerging markets such as Istanbul, Turkey; Warsaw, Poland; São Paolo, Brazil; Jeddah, Saudi Arabia; Mumbai, Indai, and Cancun, Mexico also contributed to the rise in revenues.

Sales in Europe were flat, due to weak performance in Spain, where Burberry has just made a major transition to retail outlets from wholesale ones, and in the U.K., where sales were soft generally. The rest of continental Europe reported strong results.

As reported, Burberry reached a "tipping point" during the fiscal year with regard to its sales channels. Retail sales accounted for 42.9 percent of all sales, with wholesale sales making up 46.2 percent. Burberry has been working consistently to increase the percentage of its retail sales, buying previously franchised stores and converting wholesale corners to retail ones.

"Within the next couple of years, retail will be the predominant route to market, making up more than 50 percent of turnover," said Cartwright. "There will always be a place for wholesale as a window to the brand, and licensing should make up around 10 percent of revenue."

In the current fiscal year, Burberry plans to increase its net retail selling space by a minimum of 10 percent. New store openings will be concentrated mostly in U.S. and Asian markets.

New retail openings over the next six months include stores in Atlantic City and Riverside, N.J.; Kansas City, Mo.; Madrid, Spain; Sydney, Australia, and Vienna, Austria. The brand is also doubling the size of its Hong Kong store in Ocean Center.

As for the chief executive handover process, which began in January, Cartwright said it's been a smooth one.

"We've been very lucky, and Angela has been able to sit down with all of our suppliers, customers and international offices, and work beside Rose Marie," she said. "It's been a very, very thorough immersion."

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