Burberry fashions strong sales figures from gloomy quarter

BRITISH fashion group Burberry, clothier to royalty and supermodels alike, posted unexpectedly strong figures for the third quarter yesterday, as it reaped the benefits from new stores and healthy Christmas sales.

Burberry's retail division, which accounted for almost two-thirds of revenue in the October to December quarter, grew an impressive 32% on an underlying basis, excluding the effects of currency movements and store acquisitions in Asia.

About half of this underlying growth, which helped fuel a 33% increase in total revenues, came from new store openings, and half from organic growth in existing stores.

Burberry shares have outperformed the DJ Stoxx consumer cyclicals index by almost 20%, and the FTSE Mid-Cap index by 18%.

The most pleasant surprise in the third quarter trading statement came from Britain and the US, where chief financial officer Mike Metcalf described growth as outstanding.

"We're well on track to meet the objectives we set at time of floatation," Metcalf told reporters, adding that the company was comfortable with analysts' earnings estimates of about €177 million for the year.

Burberry opened a suite of new stores in the third quarter, including flagship outlets in New York and London, and Metcalf said the early response from the company's well-heeled customers had been excellent.

The rather less-than-excellent weather in main markets during the period didn't hurt.

Trademark Burberry raincoats and accessories like umbrellas had been flying off the peg, Metcalf said, and gift items like watches, scarves and ties had also fared well over the Christmas season. Licencing revenues principally from Asia increased by 9% on the quarter despite a stagnant Japanese economy.

In common with its sector peers, Burberry has significant exposure to the tourist economy, and this is one of the few doubts surrounding the company's continued strength.

Mr Metcalf said the fear of conflict in Iraq had already begun to hit travel flows, and although tourist sales only account for about a quarter of the group's business it might take a couple of seasons for sales to recover from the impact of a war.

Analyst Claire Kent of Morgan Stanley, who rates Burberry "overweight" and has a price target of 284 pence, said the figures were stronger than she expected but that Burberry shouldn't be seen as a bellwether for the luxury goods sector.

"We believe the 2003 consensus (for the industry) is too high and there are downside risks ahead of an Iraq war," she said, forecasting under-performance for the sector over the coming 12 months.