Burberry profits to top forecasts as Chinese help jackets fly off shelves

A BOOM in the popularity of classic aviator jackets and leather goods along with the purchase of 50 stores in China has boosted profits for Burberry, the British luxury goods brand.

The 154-year-old fashion house said it expected full-year profits to beat forecasts after a 21 per cent rise in revenues during the first half of the year.

However, some analysts warned that the share price was already overvalued because of rumours of a possible takeover.

Unveiling the solid interim numbers, Burberry finance director Stacey Cartwright said: "We're growing across a number of fronts and we think that is standing us in good stead, irrespective of what the economies throw at us."

The group bought 50 stores in China this year and opened 20 outlets around the world - including two in India and one in Brazil. Strong demand for luxury branded products, such as classic Burberry raincoats - and aviator jackets at 2,500 apiece - has helped fuel sales.

The popularity of the brand with Chinese tourists was also said to be a factor in sales increases in European stores. At the company's outlets in London 30 per cent of trade comes from Chinese visitors.

The company has further expansion plans - and intends to open a further 20 stores this year - mostly in the Asia Pacific area and the US. During the latest quarter revenues in the Asia Pacific area rose by 37 per cent - while like-for-like revenue increased by 17 per cent worldwide. Licensing revenues continued to decline, down 3 per cent.

The company said revenue during the quarter to 30 September grew to 359 million, which was up from 282m in the first quarter and compares with an average forecast of 358m.

Chief executive Angela Ahrendts said: "The momentum at Burberry continues, with 21 per cent revenue growth (in the first half] and a material improvement in the gross margin.

"While mindful of our strong second half last year, we currently expect adjusted profit before tax for the full year to be in the top half of market expectations. Continued product innovation, digital and customer service initiatives, coupled with the recent acquisition of our Chinese retail operations, underpin our confidence in delivering long-term sustainable growth."

The company operates in a global luxury goods market which is estimated to be worth 130 billion a year. Sales of luxury goods worldwide decreased by 9 per cent in 2009 but have recovered this year. Burberry suffered less than some other manufacturers after taking prompt action to cut costs.Analysts expect the group to make a full-year underlying profit of 240-270m.

Citi analyst Thomas Chauvet said: "While we see upside risks from a long-term growth story, we believe the short-term positive newsflow is largely priced in."

Nick Raynor, investment adviser at the Share Centre, noted: "Although Burberry cautiousness is understandable in the current climate, we feel that bid speculation is keeping the share price above 1,000p and current figures are not backing up the share price. We therefore downgrade Burberry to a sell."

Jonathan Jackson, head of equities at Killik & Co also urged caution, saying: "Although there is a strong emerging markets growth story here, which fits with one of our key themes, this looks to be fully priced in at the current rating. We would be inclined to wait for some weakness before buying the shares."

The shares closed down 31p and 1,008p yesterday.