Burberry fashion faux pas vindicated
BURBERRY'S shares had a fashion disaster when they plunged 21 per cent in response to a profit warning in September. In just four weeks, the luxury-goods group appears to have patched things up. It said Thursday, that same-store sales rose 1 per cent in the second quarter, whereas sales through early September had been flat. That sent the shares up 13 per cent. But investors shouldn't get ahead of the trend. Undoubtedly, Burberry had a better final three weeks of September, when sales ticked up. It says most of the weakness has been the result of fewer shoppers hitting its stores, particularly in the UK and mainland China. That isn't unique to Burberry. Other luxury-goods groups are also witnessing slower sales growth on account of the weaker economic environment, to which even the biggest spenders aren't immune. The company is successfully getting more customers to trade up from jeans and polo shirts in the cheaper Brit range to higher-priced clothing from the London and Prorsum lines. In the second quarter, higher-priced ranges accounted for 49 per cent of clothing sales, up six percentage points year on year. That shift in product mix gave Burberry the confidence to forecast a modest rise in operating-profit margins for the full year. In recent years, Burberry's double-digit sales growth-often higher than that of peers-and the prospect of rising operating-profit margins meant investors were willing to pay a premium for the shares. But revenue is forecast to increase a more modest 8 per cent this year, and margins are expected to be flat for a third year.
— The Wall Street Journal