Burberry fashions ‘excellent’ results

Burberry fashions ‘excellent’ results

Fashion group Burberry has reported a rise in profits and said it should meet market forecasts next year despite tough trading conditions.

In its first set of results since it floated on the London stock market, it unveiled pre tax profits of 109.4m, up from 84.8m the previous year.

Burberry made its debut on the stock market last July after the retail to business services group GUS which remains Burberry’s majority shareholder floated a minority stake in the firm.

The firm has come up against challenging conditions with global demand for luxury goods hit by the economic slowdown, while the war in Iraq and Sars virus have hit the Asian tourist market.

However, the Sars virus has had a limited impact on Burberry as much of its Asian revenue comes from Japan, which has not been hit by the bug.

Underlying retail sales at the group grew by 25% over the year to the end of March, with sales of accessories such as handbags and luggage particularly strong.

“This has been a remarkable year for Burberry,” said chairman John Peace.

“We began life as a public company in July 2002 with the successful completion of our IPO [flotation] during very difficult stock market conditions.

“And we have ended the year with an excellent set of financial results, well ahead of market expectations at the time of the IPO.”

After allowing for one off costs relating to its flotation, Burberry’s profits were 85.1m.

Burberry said that since March its retail results had been “impacted by external events” and although underlying revenue was still growing, “comparable store performance has been modestly negative”.

Despite what it described as “exceptional short term uncertainty” it said it still expected to meet analysts’ expectations for the current financial year.

Burberry tests fashion for shares

Burberry tests fashion for shares

Even as Prada dithers, Burberry remains confident, highlighting the fact that while superficially similar the two companies do have very different stories to tell.

The attraction of checked raincoats might once have seemed limited, but not any more.

And Burberry proved you could sell macs even when the sun was shining, when it opened a store in Beverly Hills.

Burberry’s operating profits were 90.3m ($137.3m) in the 12 months to March, compared with 69.5m in the previous year.

While Burberry can be seen as a fashion success story not everyone is sure it falls into the luxury brand category.

Italian investors don’t “see it [Burberry] as a fashion brand, they need some convincing,” one analyst said.

The pricing of Burberry shares also leaves a sense that the company doesn’t really know where to pitch itself.

Its shares are priced in a range of 230 pence to 290p.

At the bottom of this range, the shares are at a 10% premium to other UK stores, but still about 40% less than luxury good groups.

Burberry’s pricing might have influenced Prada’s decision to pull out of its share offering though the company cited poor overall market conditions.

Prada, a family run business, has no difficulty being seen as a luxury goods brand.

The long established Prada name carries more cachet than the Burberry name which has yet to prove its longevity in the high fashion end of the market.

Prada’s financial tale is, however, slightly different.

Having bought brands such as Jil Sander and Church Shoes, it now needs cash to pay off its debts.

Some analysts argue that buying the brands hasn’t just led to a debt problem for Prada.

It has also failed to benefit from the brands and they have led to a dilution of time and management effort.

Even when it does float, Prada is unlikely to raise enough to wipe out its debts.

Burberry’s parent company GUS plans to use money from its flotation to pay off debts, a move which would effectively leave Burberry debt free.

So, how do the respective companies view each other?

“Prada’s view is that Burberry is a British mackintosh manufacturer that has done a good job riding the fashion wave,” one source close to the Prada deal told Reuters.

“We are not a multi brand group, “Burberry chief executive Rose Marie Bravo said when questioned about competition between the two share offerings.

“We believe that is a competitive advantage.”

In perceiving the question to be one of branding, Ms Bravo highlighted what many believe to be the key issue for luxury goods companies.

Prada’s unwieldy bag of brands were bought to create value, but have yet to do so, whereas Burberry is the tale of the successful reinvention of an aging brand.

Few high fashion names make their money from the clothes that grace the catwalk shows but their presence there is crucial to maintaining the brand that allows them to sell the lucrative accessories, such as handbags and belts.

Many fashion companies evolved by licensing franchises, but the importance of branding is such that more of them are operating directly controlled stores, or handing out concessions to ensure they control their own brand.