Business World

Tuesday 23 September 2014

Wealthy customers dig deep to give Burberry surprise lift

James Davey

Published 08/11/2012 | 05:00

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British fashion house Burberry said it is in strong shape heading into Christmas as wealthier shoppers continue to spend on its top-end ranges.

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"We are as strong going into the third quarter as we've been in the seven years I've been with the company," said chief executive Angela Ahrendts. "With the things we can control we feel very positive."

The firm, best known for its raincoats lined with a distinctive camel, red and black check design, sent shockwaves through the industry in September when it warned of a slowdown in China, which has been the driving force of a near three-year boom in demand for luxury goods.

Burberry said that while some of its more "aspirational" consumers had been hit by the faltering global economy, it had sold a higher proportion of goods from its top-end Prorsum and London lines to its wealthiest customers, boosting first-half profit margins.

The 156-year old firm is following an industry-wide trend of buying back licences, in a deal to end its agreement with Interparfums, bringing fragrance and beauty in-house from April next year.

"The opportunity for us is not only huge in the existing category (fragrance and beauty) but it will be the positive effect it has back on the core business as well," Ms Ahrendts said.

Fragrance

She hopes fragrance will create a "halo effect" on sales of other products through cross-marketing and being able to tempt new fragrance customers with higher priced products.

Chief financial officer Stacey Cartwright said Burberry sees fragrance and beauty as a growth area where it lags peers, including LVMH.

"By bringing it in-house and treating it as part of the core we will be able to leverage this business much more significantly over the medium and longer term," Cartwright said.

Burberry will make a €181m payment to Interparfums for ending the licence.

The group made a profit before tax and one-off items of £173m (€217m) in the six months to September 30. That compared to analyst forecasts of £157m--£172m, with a consensus of £167m, according to a company poll, and £162m last year.

The fashion firm said it expects the fragrance move to be broadly neutral to underlying profit in 2013-14 and improving earnings "very nicely" thereafter.

Shares in the firm, down more than 15pc in the last six months, were down 1.2pc at 1,237p at midday, valuing the business at about £5.5bn. (Reuters)

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