Pre-tax profits at luxury retailer Burberry rocketed nearly 50% to £129m in the first half when it introduced a new pricing strategy and fine-tuned its stock replenishment system.
Like-for-likes jumped 9% in the six months to September 30 and total adjusted revenues rose 21% to £641.1m, thanks to improved full price sell-through on core products, including coats and leather bags, and 20 new store openings in the Americas and Asia Pacific. The operating margin increased to 14.8% from 10.7% in the same period last year.
Analysts had already upped full-year profit forecasts to between £240m and £270m after the most recent trading statement suggested Burberry would enjoy a strong first half. Investec said the interim results, strong cash generation and its potential for international expansion “underpinned” its full-year forecast.
UBS expects a “somewhat slower” second half despite solid improvement in Burberry’s gross and operating margins. The broker noted that management had not increased sales growth guidance for the second half despite a 25% increase in retail space, including 15% in China, as it faces tougher like-for-likes over the period.
Burberry’s retail business turned over £366m, accounting for 57% of total revenue, while its wholesale operation turned over £226m over the first half. Sales of clothing rose 13%, driven by outerwear, while sales of accessories such as leather bags rocketed 26% and now account for 40% of total turnover.
Chief executive Angela Ahrendts flagged the UK, Italy, France and Hong Kong as the key retail performers over the period. She said that momentum has been building in Europe but that it was “difficult to gauge” whether the growth showed a return of demand in the region or if it had been driven by Chinese tourists.
Digital sales advanced by 50% over the half year following investment in digital initiatives, including a live stream of its September catwalk show online, which attracted 650,000 viewers, and to audiences at 25 flagship stores, through its “retail theatre” technology. A global digital commerce platform is being tested for roll-out in the next few months.
Burberry expects to invest £130m over the full year with “aggressive” investment plans for China, where it plans to improve retail productivity and open more stores. It also plans further stores in India, with its fifth shop launching in December, while a second store in Brazil is to open imminently.