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IT Costs Cut Into Burberry Profits

Burberry said Tuesday that net profits slipped 6 percent to 49.9 million pounds, or $92.3 million.

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A look from Burberry

A look from Burberry.

Photo By WWD Staff

LONDON — Burberry said Tuesday that net profits slipped 6 percent to 49.9 million pounds, or $92.3 million, in the first half ended Sept. 30, due entirely to costs of Project Atlas, the group's IT and operational overhaul program.

This compares with net profits of 53.1 million pounds, or $96.7 million, in the corresponding period a year earlier.

Revenue at Burberry rose 10.4 percent to 392 million pounds, or $725.5 million, from 355 million pounds, or $646.6 million, powered by retail sales of outerwear, women's wear and the new Burberry Icons accessories collection.

Stripping out the costs of Project Atlas, which the company said had tracked to plan and budget during the period, operating profit would have risen 7 percent to 84.2 million pounds, or $155.8 million, from 78.8 million pounds, or $143.5 million.

All figures have been calculated at average exchange rates for the respective periods.

"We're bang on track with all the figures, and they are consistent will full-year projections," Stacey Cartwright, chief financial officer, said in a joint telephone interview with chief executive Angela Ahrendts.

With regard to Project Atlas' financial implications for the current 2006-07 fiscal year, the company continues to expect to realize benefits of approximately 6 million pounds, or $11.1 million, and incur expenses of 19 million pounds, or $35.2 million.

Meanwhile, Burberry has been pushing hard to boost retail sales as a percentage of overall revenue, and in this half, retail rose to 43 percent of sales from 35 percent in the previous period.

A continuing priority has been store openings, and in the first half, Burberry opened six new stores in cities including Sydney, Istanbul and Madrid — one replacement store and five concessions — and two outlets.

"We're changing our mind-set from luxury wholesaler to specialty retailer, and Project Atlas has enabled us to do that," said Ahrendts.

"We're now able to flow fresh goods into stores every month. In the past, there were two markets per year, with two major delivery drops — and no formal flow strategy," she added.

Its plan is to increase selling space 13 to 14 percent in the full fiscal year, and the company planted its checked flag for the first time in Austria, Ukraine and Mexico.

In Vienna, the company has opened a 3,750-square-foot store at 2 Kohlmarkt, while in Kiev, Burberry unveiled a 3,024-square-foot store on Kreshatik/Zankovestska Street. The new Mexico City store is located at Masaryk No. 433 Col. Polanco, and spans 3,110 square feet.

Ahrendts said that, while Burberry was focused on behaving like a retailer, the company was still paying close attention to its wholesale clients, who also would benefit from the more frequent flow of goods.

Indeed, over the past month Burberry upgraded its second-half outlook for wholesale growth to a high-single-digit figure from a midsingle-digit one, due to its new delivery capabilities. The company also has added two more markets to its sales calendar, for a total of four.

During the most recent new market, in September, the company unveiled a Burberry London summer collection as well as two new handbag styles belonging to the Burberry Icons collection.

The Mini Manor Bag launches in-store in January, and comes in quilted napa leather, patent leather and Burberry check. Its larger, elder sister, the Manor bag, already had sold out of stores in September.

The Beaton bag, named for society portrait photographer Cecil Beaton — the inspiration for Burberry's latest ad campaign — has a leather, trench-inspired buckle strap around the top and bears the equestrian knight logo.

The bag, which launches worldwide in March, comes in materials including ochre or pale gray python, trench-quilted patent leather and woven vintage silver python. It has special inside pouches for mobile phones, MP3 players and PDAs.

For summer, the more casual Burberry London collection also pays homage to the trench as well as tailored silhouettes and soft-edged dresses.