More on Burberry
Burberry full year results
Burberry’s retail sales rose 8% at CER, in line with the expansion is selling space , which implies low LFL sales. Wholesale sales growth was similar (9% at CER) which is a more solid achievement but the best news for the year was a 19% rise in high margin licensing revenues. Licensing generates only 11% of turnover but as the costs of licensing sales is very small licensing generates 40% of Burberry’s operating profit.
Improvements in margins are encouraging. The improvement in the sales mix is fairly obvious from the higher growth in licensing revenues, but in addition to this the margin of the combined wholesale and retail business also rose significantly, with its operating margin going from 14.2% to 15.5%. Burberry does not disclose the profits for the retail and wholesale businesses separately as sales between them are not done at an arms length basis. We would have preferred the company to disclose the numbers and explain the distortions (at least in broad terms). Burberry fails to disclose a number of potentially useful pieces of information including LFL numbers.
The pattern of growth across regions remains the same; Europe 4% at CER, US 11% and Asia 19%. The sizes of the businesses means that the three regions are currently adding similar amounts to sales but in the long run Asia is the most promising growth driver. The brand is stronger and less likely to suffer from over extension while the market is also growing rapidly.
At a prospective PE of 16 and a yield of 1.8% (at 400p) Burberry is expensive against the sector. The retail and wholesale businesses do not deserve this rating but it is supported by the continued rapid growth of licensing and the strength of the brand in fast growing Asian markets.
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