Burberry (BRBY) strutted 4% higher to £14.98 as investors applauded a better-than-expected first quarter trading update from the global luxury leader. Famed for its Equestrian Knight Device and Burberry Check trademarks and high-end trench coats, the quintessentially British brand continues to defy disconcerting economic indicators from China.
Given fears over cooling in the world's second biggest economy, investors breathed a sigh of relief as Burberry's sales surprised on the upside, although first-half adjusted pre-tax profits will still be below last year's £173 million figure.
For the three months to 30 June, the £6.3 billion cap's retail sales skipped 18% higher to £339 million, 7% ahead of consensus. Like-for-like sales grew by 13%, comfortably ahead of the growth anticipated by City scribes. The balance was delivered from new space, with expansion in the quarter including two store openings in Shanghai, a third store in Mexico and a relocation in Frankfurt.
Chief executive officer Angela Ahrendts attributed the robust growth rates to an 'exceptional performance' from the FTSE 100 fashion firm's Spring/Summer 2013 fashion collections. Sales were boosted from a well-received advertising campaign featuring Romeo Beckham and ubiquitous British model Cara Delevingne as well as excitement stirred by Burberry's celebrity-packed runway shows.
Large leather goods and outerwear accounted for over half the growth, which was broad-based by product and region and helped by Burberry's investment in digital. Burberry Prorsum, the most fashion forward collection centred around runway shows and Burberry London, a collection designed for weekdays at work, both increased within the mix.
Fears continue to grow over slowing economic progress in China, which has reported weaker-than-expected trade data and where modest austerity measures and attempts to tackle gifting – a culture of offering 'presents' during corporate meetings – pose a threat to luxury sales.
Reassuringly, Burberry delivered double-digit comparable store sales growth in the Asia Pacific region, where its high-end wares continued to sell strongly in China and Hong Kong. Burberry brought its fragrance and beauty businesses in-house in April. This should help the company boost growth of non-apparel products to meet the demands of customers in Asia, where appetite for Western luxury clearly remains voracious.
Cantor Fitzgerald analyst Allegra Perry, with a 'hold' rating and £15 price target for Burberry, writes: 'The group has executed well on its strategy, with strong full price sales driving impressive comparable store sales growth and margins. While we believe there is a significant margin opportunity given the gap to its larger luxury peers, we see this as a longer term story and believe the shares are broadly up with events.'