Luxury retailer and brand Burberry is to plough £80m into store refurbishments this year and focus on high-profile flagship openings after reporting a surge in profits.
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Burberry said that it planned capital expenditure of between £180m and £200m in its current financial year, of which about £80m will be spent on refitting and upgrading the existing store estate.
Investec analyst Katharine Wynne said the investment cost would probably reduce EBIT by £10m this year, but that Burberry was”still likely to add to its cash pile in the coming year”.
London, Paris, Milan, Chicago, Hong Kong, Shanghai and São Paulo are the key locations targeted for investment. Burberry intends to increase space by between 12% and 13% this year, including a net 20 to 25 stores. Openings will be biased towards China, Latin America and the Middle East.
In the year to March 31, Burberry posted an adjusted pre-tax profit of £298m, a rise of 39%. Sales advanced 27% to £1.5bn.
Sales at Burberry’s retail division, which accounts for almost two thirds of the total, soared 36% to £962.3m, contributing to a combined adjusted operating profit from retail and wholesale of £219.5m - a 59% increase. Like-for-likes improved 11% over the year.
Sales of goods other than apparel rose 35% and now represent 40% of revenues.
Burberry chief executive Angela Ahrendts said: “Burberry delivered strong operational and financial progress during the year, thanks to the consistent execution of our core strategies by our team and partners and more closely connecting our brand vision and values to consumers around the world.
“While mindful of global macro challenges in the current year, we will continue to invest to drive growth across our portfolio by channel, region and product.”
Seymour Pierce analyst Kate Calvert said: “Burberry not only operates in a market place with strong long-term growth credentials but has significant geographical, and product mix, opportunities with operational leverage to come. We expect it to deliver continued outperformance relative to its peers.”
Investec expects Burberry’s earnings will grow at twice the average rate of its peer group over the next two to three years.
Wynne said that, because Burberry anticipates “modest” net margin growth in the current financial year, she has edged up her pre-tax profit forecast to £365m. Wynne said: “We continue to argue for Burberry to trade at a premium to a basket of luxury and retail peers.”