Burberry Up More Than 8% After Defying Slowing Growth

LONDON -- Burberry (LSE: BRBY.L  )  confirmed its slowing growth in its first-half trading update this morning, with comparable-store sales growth at 1% in Q2 compared with 6% in Q1. However, the luxury retailer did announce that total revenue increased by 8% on an underlying basis (11% in Q1 and 5% in Q2) to 883 million pounds from 830 million pounds in H1 2011, while underlying retail revenue was up 10% to 577 million pounds from 528 million pounds at the same point last year.

CEO Angela Ahrendts stated that the results should be set "against record prior year comparatives," and the trading update stressed that lower footfall in the second quarter was countered by higher-quality sales and average spending.

The company confirmed that second-quarter growth slowed in the U.K. and China, though its operations in Hong Kong, France, and Germany remained robust. Ahrendts continued: "Our highly experienced team remains very focused on the consistent execution of our key strategies, engaging consumers through innovative retail and digital marketing initiatives as we enter the most important quarter of the year. We continue to invest for long-term growth in flagship and emerging markets, while tightly controlling discretionary spend."

In further news this morning, the company has revealed that it is to directly operate its Burberry brand in fragrance and beauty following the end of its existing license relationship with Interparfums SA. Ahrendts commented:

Directly operating fragrance and beauty is in line with our strategy of taking greater control over our brand. There are significant opportunities to accelerate the growth of this business over time, leveraging our infrastructure and that of existing key suppliers and distributors. We are very excited about fragrance and beauty becoming an important fifth product division for Burberry, as we more closely align it with our core business and brand positioning.

The move is not thought to be too risky, as Burberry already leads all product design, packaging, and marketing activities for this product division, and it will now take control of the relationship with sourcing, logistics, and distribution partners globally. In order to ensure a smooth transition, the company has extended its license relationship with Interparfums until March 31, 2013, with Burberry due to commence direct operations from April 1, 2013.

Shares were up more than 8% at the time of writing, after having dropped more than 30% on the initial unexpected news of a slowdown in growth back in September. But directors dropped more than 1 million pounds of their own money to buy shares when that happened -- a sign that they were convinced the company's share price presented a buying opportunity at its 52-week low.

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Sam does not own shares in any of the companies mentioned. The Motley Fool has recommended shares in Burberry. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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