November 7, 2012 / 8:08 AM / 5 years ago

Burberry says richest customers keep spending

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

A woman walks past a Burberry shop in Beijing, July 11, 2012. REUTERS/Jason Lee

“We are as strong going into the third quarter than 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 shock waves 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 on Wednesday 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 2013.

“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,” Ahrendts told reporters.

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 181 million euro ($231.71 million)payment to Interparfums for ending the licence, 71 million pounds of which is taken as an exceptional item in first half accounts.

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

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

Shares in the firm, down more than 15 percent in the last six months, were down 1.2 percent at 1,237 pence at 1258 GMT, valuing the business at about 5.5 billion pounds.

“The backdrop is tough, Christmas is crucial, and we see few near-term catalysts,” said Investec analyst Bethany Hocking.

Last month Burberry said sales had steadied in the final weeks of its second quarter, calming investors rattled by the earlier profit warning. On Wednesday there was no change to its guidance for the second half.

Total first-half revenue was 883 million pounds, up 8 percent at constant exchange rates, with first quarter growth of 11 percent slowing to 5 percent in the second.

The firm said its retail/wholesale adjusted operating margin was up by 60 basis points to 15.5 percent.

The group, which ended the half with net cash of 237 million pounds, is paying an interim dividend of 8 pence, up 14 percent.

Reporting by James Davey; Editing by Elaine Hardcastle

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