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Burberry profit tops estimates as Bailey settles in as CEO

Bloomberg

Burberry Group Plc’s new Chief Executive Officer Christopher Bailey outlined Wednesday his growth vision for the U.K.’s largest luxury-goods maker as he reported full-year earnings that exceeded estimates.

“Tremendous opportunities lie ahead by channel, by region and by product category,” Bailey, 43, said at his first results presentation in London. The development of Burberry’s beauty business and a transition to fully controlling the company’s Japanese unit “offer exciting further potential.”

In Japan, the company plans to add to its four stores and 10 concessions in an effort to boost revenue to more than £100 million by fiscal 2017 with incremental profit of about £25 million.

Bailey replaced Angela Ahrendts as CEO this month, retaining his role as chief creative officer, which he’s held since 2009. As CEO, he faces a tough task to repeat the success of Ahrendts, who more than doubled sales in almost eight years at the helm, before leaving to head retail at Apple Inc.

Burberry, which took its beauty business in-house last year, is partnering with Amazon.com Inc. and Alibaba Group Holding Ltd.’s Tmall.com to boost online sales of Brit Rhythm fragrances and other products. It also plans to take control of its Japanese business when a license expires there next year.

“The appointment of Christopher Bailey to CEO is a positive for Burberry,” Louise Singlehurst, an analyst at Morgan Stanley, said by email. She has an overweight rating on the shares “given the long-term opportunities within Japan and beauty, as well as the brand’s digital initiatives.”

Adjusted pretax profit rose 8 percent to £461 million in the 12 months ended March 31, London-based Burberry said. Analysts predicted £450 million, according to an average of 18 estimates.

Burberry repeated that wholesale revenue from beauty will grow about 25 percent at constant exchange rates this year and that it is targeting “mid-teens percentage” growth in fragrances from fiscal 2016. The company, which has hired executives from companies including Chanel to help manage the business, is seeking to become a top 10 beauty brand, which would require a more than fivefold increase in sales.

Burberry, which opened its first fragrance and cosmetics store in December, plans to add more beauty boutiques and counters, Chief Operating Officer John Smith said. He declined to say how many.

Excluding beauty, wholesale revenue will be broadly unchanged in the six months through September, from £244 million in the same period last year, Burberry said.

Bailey said he sees “great potential” for Burberry in Japan. In fiscal 2015, Burberry will intensify its efforts in digital commerce, including widening its distribution on third-party Web stores, he said.

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