Burberry Warns of FY Currency Headwinds

Burberry

Burberry has warned that exchange rates could weigh on full-year profit, despite booking a double-digit increase in first-quarter retail sales.

The company said the rising strength of the pound could impact its annual profits negatively by £55 million ($94.2 million) if exchange rates remain the same.

In the first trading update with new chief executive Christopher Bailey in control, the company said underlying retail revenue jumped 17% to £370 million ($632 million) during the three months to June 30. On a reported basis, retail revenues were up 9%. Comparable sales increased 12%, driven by planned investment.

Asia Pacific and the Americas regions enjoyed double-digit comparable store sales growth, while Europe, Middle East, India and Africa (EMEIA) reported a low single-digit increase.

“This first quarter performance reflects our focus on striving to give customers the best possible experience of the Burberry brand through ongoing investment in retail, digital and service, both on and offline,” Bailey said.

“With great brand momentum and a focused vision, we remain confident of delivering sustainable, profitable growth into the future,” he added.

Charles Stanley Research analyst Sam Hart said although significant foreign exchange headwinds and the move of Japanese operations from a licensing model to a fully owned and operated model are likely to “act as a brake on growth in 2015/16,” underlying profit growth will “remain healthy” in both years.

“We expect global demand for luxury goods to remain reasonably buoyant over the medium term, given our expectation that the global economic environment will continue to slowly improve and our belief that luxury goods is a long term structural growth market.”

And Burberry appears “particularly well positioned” to benefit from the trend, according to Hart.

Richard Hunter, analyst at Hargreaves Lansdown Stockbrokers, is also positive about the results. “Today’s update is showing signs of blowing away some cobwebs from Burberry’s recent checkered history.”

And although the company’s share price has been weak, updates like this will “continue to exert positive pressure on the market consensus which, for the moment, remains anchored at a strong hold,” he added.

For more fashion and apparel industry news, go to just-style.com

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