Burberry Group plc (LON:BRBY) shares were strutting higher today after it unveiled an increase in first quarter revenue, boosted by sales growth in China and the UK.
Shares edged up 2.41% to 1,619p in morning trading.
The luxury fashion retailer reported a 3% rise in underlying retail revenue to £478mln and a 4% gain in comparable sales in the three months to 30 June 2017.
A strong performance in China helped to deliver mid single-digit percentage growth in comparable sales in Asia Pacific, mitigating a challenging macro-economic environment in Korea.
The UK led high single-digit percentage growth in the Europe, the Middle East, India and Africa regions as a weaker pound enticed overseas travellers to shop at Burberry.
However, the UK experienced a decrease in comparable sales towards the end of the quarter and parts of Continental Europe were weak, such as Italy.
In the Americas, comparable sales fell by a low single digit percentage, as domestic and tourist spending in the US dropped. The US luxury fashion market has slowed with interest rates rising and new import taxes in the country.
Instead, US shoppers enjoying a stronger dollar are spending their hard earned cash in other parts of the Americas.
E-commerce sales jumped, with purchases on mobile phones rising 40% and China revenues more than doubling compared to last year.
Burberry to deliver cost savings as part of restructuring
Burberry is currently undergoing a restructuring and is on track to deliver cost savings of £50mln by fiscal year 2018 and to begin operating a new business services centre in Leeds in October.
The company plans to move about 300 roles to Leeds from London to reduce office space requirements in the big smoke and save money.
Marco Gobbetti - who replaced Christopher Bailey as chief executive on 5 July and was previously boss of fashion and accessories brand Céline, owned by French rival LVMH – said: “We are pleased with our performance in the first quarter, while mindful of the work still to do."
He added: “This is a time of great change for Burberry and the wider luxury industry. I look forward to building on the foundations Christopher and the team have put in place and creating new energy to drive growth."
READ:Berenberg sees opportunities for Burberry in China under its new leadership, and raises target price
Burberry reiterates 2018 guidance
The group left its full year 2018 guidance unchanged for pre-tax profit at constant exchange rates.
Burberry expects a £25mln hit to adjusted pre-tax profit from a weaker pound against other currencies, based on exchange rates at 30 June, compared to the £30mln impact estimated in April.
The company said in the retail division, it "will focus on productivity from its current store footprint therefore no material contribution from net new space is expected” in 2018.
In wholesale, the company sees flat revenue in the first half of £217mln followed by a decline in the second, excluding the impact of its struggling beauty business.
Total underlying licensing revenue for 2018 is anticipated to rise, including a 20% year-on-year impact from beauty.
Burberry has decided to throw in the towel to develop its beauty business in-house by franchising the operations to US cosmetics group Coty. The business will transition to a strategic partnership with Coty in October, the company said today.
What analysts think of Burberry's trading update
Ken Odeluga, senior market analyst at City Index, said the increase in Burberry's share price reflects "palpable relief" after an "unexpectedly solid advance in first-quarter comparable sales growth and the most promising underlying trend in China for at least three years".
Odeluga noted that the 4% increase in comparable sales beat average forecasts of 2.3% and represented the "best sign of a potential group sales rebound for several quarters".
"Burberry’s newest ranges and leather goods were the stand-out products in the first quarter, reducing concerns among some investors about potential C-Suite tensions following the sideways progression of former CEO Christopher Bailey to a full-time creative leadership role.
"Leather spans all product ranges and accessories, Burberry’s highest-revenue category, which was also bolstered by the DK88 handbag range which sells for as much as £2,495 per unit, according to the group’s paid search advertising."
UBS said first quarter retail revenue beat its expectations by 2% while comparable sales growth exceeded its forecast of 2%.
However, the bank said there was risks to luxury goods copmanies, including terrorism, drastic political changes, pricing pressure, brand value, management execution and successor issues, perception in equity market about long-term growth, and foreign exchange rates.
Steve Clayton, fund manager of the Hargreaves Lansdown Select UK Growth Shares fund, said: "This is an encouraging performance from Burberry, which looks to be at long last pulling out of the doldrums."
But Clayton warned that reported growth will be held back a bit in the near term due to little new space being added and “brand control” in the wholesale channel later this year as Burberry attempts to massage its brand’s perception and positioning higher.
"But with an acceleration in new product launches set for the second half of the year, the underlying progress at Burberry should improve steadily," he said.