British luxury goods company Burberry Group PLC is pushing ahead with new store openings after reporting Thursday that surging sales of leather bags and other accessories more than doubled its full-year profits.
But the strong earnings didn't prevent a slump in the 155-year-old company's share price as some investors booked some profits after Burberry said its investment in expansion would hit operating profit margins in the first half of this fiscal year.
Burberry rode a strong rebound in the global luxury goods market to post net earnings of 208.4 million pounds ($340 million) for the 12 months to the end of March, compared with 81.4 million pounds the previous year.
Revenue at the company known for its distinctive red, black and brown plaid fabric, leapt 25 percent to 1.5 billion pounds, from 1.2 billion pounds.
Profits were driven by a 35 percent rise in sales of non-apparel goods, such as handbags, jewellery, and shoes. Demand for the group's upmarket stock was particularly strong from Asia and Chinese tourists in Europe.
"For the moment Burberry remains a rare and notable example of a retailer enjoying a stellar growth trajectory," said Richard Hunter, head of U.K. equities at Hargreaves Lansdown Stockbrokers.
However, Hunter noted the company "remains exposed to changes in demand for luxury goods, which in turn is connected to general global economic health."
"In addition, the group has a high exposure to clothing for a luxury provider, which could bring some concerns as fashion trends change," he said.
Burberry's shares dropped 4 percent to 1,268 pence as the London-based group said that the full-year operating profit increase would be "modest" after three years of strong gains.
Still, Burberry plans to open 20 to 25 new stores this year to capitalize on a strong rebound in the global luxury goods market following the global economic downturn.
"While mindful of global macro challenges in the current year, we will continue to invest to drive growth across our portfolio by channel, region and product," said Chief Executive Angela Ahrendts.
The high end sector has recovered much faster than the rest of the retail market.
U.S. retail consultancy Bain & Co. earlier this month forecast worldwide luxury sales to grow 8 percent this year to euro185 billion. Bain predicted that the U.S. would remain the world's largest market with an 8 percent increase in sales to euro52 billion, but highlighted an anticipated 25 percent surge in growth in China. European growth, meanwhile, was estimated at 7 percent, while Japan _ traditionally a strong performer _ was expected to decline 5 percent after the recent earthquake.
Burberry has focused recent new store openings on emerging markets, which make up 16 percent of the group's retail and wholesale revenues, including India, Brazil and Mexico. It now has 174 mainline stores, 199 concessions in department stores and 44 outlets.
China, where it has 57 stores, is a major target for the company after contributing 12 percent of underlying retail sales.
Burberry has transformed itself in the five years that Ahrendts has held the top job, since joining the company from Liz Claiborne Inc., using star power such as "Harry Potter" actress Emma Watson in advertising campaigns to counter a perceived overexposure of the famous plaid fabric.
During the global financial crisis, the company instituted a cost-cutting program that slashed jobs in Britain and Spain, but it stuck with store openings in Asia and the Americas. This year the company plans a 12-13 percent increase in average retail selling space, with a bias toward China, Latin America and the Middle East.