Trenchcoat maker Burberry first quarter retail revenues increased by 9% (17% at constant currencies) while same-store sales grew by 12%, compared to Q1 2013. However, the British luxury fashion brand also warned that unfavorable exchange rates, if they stay at current levels, could undermine retail and wholesale profits by £55 million.
Online sales continued to grow strongly in all regions of the world, the company informed.
Double-digit growth in Asia was mainly led by sharp sales increases in mainland China and Hong Kong.
“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. The 12% increase in comparable sales demonstrates our teams’ success in unlocking the benefits of these investments, as we continue to concentrate on the things we can control in an uncertain external environment.”
For the year ending on March 31st, Burberry had announced record profits and revenue of £461 million ($778 million) and £2.33 billion ($3.93 billion) respectively.
Investor ire over pay deal
Burberry shares rose 5% in early trading today to £14.90 ahead of the company’s annual meeting on Friday. The Board of Directors will likely face investor anger over a pay deal.
News update July 11, 2014: Fifty-two percent of Burberry investors voted against Mr. Bailey’s pay package at the company’s AGM in London today. While acknowledging it was “a lot of money”, Chairman Sir John Peace revealed that in 2013 another company tried to poach Bailey with more money.
In May, ex-creative director, Mr. Bailey, took over from Angela Ahrendts, who lifted the firm to global luxury brand status and was rewarded by becoming one of the UK’s best-paid executives. Investors are not happy about Mr. Bailey’s golden-handcuff pay package, which is worth over £20 million.
The Investment Management Association, whose members account for about 15% of the London stock market, has given Burberry an “amber top” rating for its executive pay deals. It advises members to scrutinize the pay arrangements before casting their votes.
PIRC, a shareholder advisory group, urged investors to reject Burberry’s remuneration policy, saying Mr. Bailey’s total package may be worth 825% of base salary.
Strong pound hurting profits
According to Mr. Bailey, annual pre-tax profits from the company’s licensing, wholesale and retail activities will be approximately £65 million lower this year than the £444 million recorded last year.
Finance Director, Carol Fairweather, added that if current exchange rates continue as they are, profits will be hit even harder.
This month, the British pound reached a six-year high against the dollar as the country’s economy gathers steam and expectations grow that the Bank of England will raise interest rates.
With the pound appreciating against the Japanese yen, Burberry expects licensing revenue to fall by approximately £10 million.
Burberry – highlighted data
- Men’s, women’s and accessories saw double-digit growth.
- Fashion and replenishment sales posted a “balanced performance”.
- Strong sales reported in women’s Spring/Summer 2014 Prorsum, men’s tailoring, and iconic rainwear.
- Solid leather continued increasing its share of the large leather goods offerings.
- Sales in Hong Kong and mainland China pushed Asia/Pacific sales to double-digit growth.
- Significant outperformance from digital lifted sales in the Americas to double-digit growth.
- The following markets posted single-digit growth: India, Africa, the Middle East and Europe.
In the first quarter Burberry opened mainline stores in Edinburgh, London Heathrow airport, and airports in Milan and Madrid.
Burberry says its direct entry into the Japanese market will be complete in June next year, after the licensing deal with coat maker Sanyo Shokai expires.