January 18, 2011 / 7:31 AM / 8 years ago

Burberry's tourist lift shows luxury sector health

LONDON (Reuters) - Burberry (BRBY.L) provided more evidence of a thriving luxury goods market on Tuesday, saying it expects its profit for the year to be at the top end of market expectations.

A model presents a creation during the Burberry 2010 Autumn/Winter collection during London Fashion Week, February 23, 2010. REUTERS/Luke MacGregor

The luxury goods industry has recovered strongly from its worst slump in decades thanks largely to buoyant demand in Asia.

At Burberry, wealthy tourists splashing out on coats and leather goods drove a forecast beating 27 percent rise in third-quarter sales.

Switzerland’s Richemont CFR.VX, the world’s second-largest luxury goods group behind French rival LVMH (LVMH.PA), posted a 23 percent rise in third-quarter sales on Monday.

Burberry, a 155-year-old maker of raincoats and handbags said it was well positioned thanks to global market strength, bolstered by high-end tourists, particularly from China.

“Ongoing initiatives in retail, digital, product development and new markets underpin our confidence in the future,” said Chief Executive Angela Ahrendts.

Burberry, best known for its camel, red and black check pattern, said revenue, excluding its restructuring Spanish business, rose to 470 million pounds in the three months to December 31.

That topped an average forecast of 434 million pounds, according to a company poll of 11 analysts, and 362 million in the 2009 period.

Burberry shares have surged 82 percent over the past year, lifted by bid speculation, outperforming a 32 percent rise in the STOXX 600 European household and personal goods sector index .SXQP.

The stock was up 4.2 percent at 1,103 pence at 11:55 a.m. British time, valuing the business at about 4.8 billion pounds.

“With Burberry forecast to grow at least twice the rate of its peers, we believe at least a 20 percent premium is justifiable,” said Kate Calvert, analyst at Seymour Pierce.

“Burberry not only has significant geographical, product mix and leverage opportunities but operates in a market with long term growth credentials geared in to global growth.”

DOUBLE-DIGIT GROWTH

Burberry weathered the economic downturn better than many rivals, thanks to a quick response which saw it slash costs, jobs, stocks and ranges. It said it saw strong consumer demand in both its retail and wholesale divisions,

It posted double-digit growth across all product divisions and particularly strong sales of outerwear and large leather goods.

Retail sales increased 36 percent on a constant currency basis, with comparable store sales growth of 14 percent.

The firm said the Americas, Asia Pacific and Europe all delivered double-digit comparable store sales growth, with particular strength in the UK, France, Hong Kong and Taiwan.

Comparable store sales growth from shops in China acquired last year was over 30 percent.

Underlying wholesale revenue rose 15 percent, and the firm raised its guidance for second-half wholesale revenue growth to a “high teens” percentage rise, excluding China.

“As a result, we now expect adjusted profit before tax for the current financial year to be at the top end of market expectations,” said Ahrendts.

Chief financial officer Stacey Cartwright told reporters that prior to the update, analysts’ forecasts had ranged from 250 million to 290 million pounds.

Profit of 290 million pounds would represent an increase of 35 percent on the 215 million pounds made in 2009-10.

Editing by Dan Lalor, Will Waterman and Alexander Smith

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