Last updated: November 7, 2012 5:45 pm

Burberry profit cut by move into perfumes

Burberry PICN©PA

A move to start making its own perfumes and cosmetics has fuelled a 29 per cent decline in first-half pre-tax profit at Burberry, but the British luxury goods maker said the decision would prove lucrative.

Burberry on Wednesday posted a pre-tax profit of £112m for the six months to September 30, down from £159m a year earlier.

The decline was driven by a £74m charge to cover part of the previously announced €181m cost of ending a licence agreement with Interparfums, the French group that makes fragrances and beauty products for a wide variety of brands.

Burberry will take these activities in-house from April, creating a new division, Burberry Beauty, to house them. It said the move would enable it to capitalise on significant growth opportunities.

“We see huge potential in this category,” said Angela Ahrendts, chief executive, adding that the products would be presented in a way that was “much more linked into the fashion calendar”.

Stacey Cartwright, chief financial officer, said the category was important because it offered a relatively affordable introduction to the brand.

On an underlying basis, pre-tax profit rose 6 per cent to £173m. This was better than the £167m expected on average by analysts in the wake of the profit warning the group issued in September.

Sales for the period – which had already been announced in October – were £883m, up 6 per cent on the same period a year earlier.

Ms Ahrendts said the luxury sector was experiencing a broad-based slowdown in growth across all regions. Like-for-like sales growth in its directly operated stores fell from 6 per cent in the first quarter to 1 per cent in the second quarter.

Sales growth for the global luxury goods industry at constant exchange rates is expected to slow from 13 per cent in 2011 to 5 per cent in 2012, according to an annual study released last month by Bain & Co, the management consultancy, and Altagamma, the Italian luxury goods trade body.

Burberry is nonetheless sticking to its capital expenditure plans for the current financial year, which entail spending £180m-£200m. Store openings in the second half of the year include branches in Chicago, Shanghai, Brazil and Mexico, as well as a standalone men’s store in Knightsbridge, London.

Diluted earnings per share fell 28 per cent to 19.1p. An interim dividend of 8p a share has been proposed, up from 7p a year earlier.

Its shares gave up early gains to fall 4.2 per cent to £11.99 by the close Wednesday, taking the decline over the past year to 10 per cent.

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