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Executives

Stacey Cartwright - CFO

Fay Dodds - IR

Burberry Group plc (BRBY) F2Q08 Earnings Call November 14, 2007 10:00 AM ET

Operator

Good afternoon, ladies and gentlemen and welcome to your Burberry interim results 2007/2008 conference call. (Operator Instructions). I will now hand it over to your host, Stacey Cartwright, to begin today's conference.

Stacey Cartwright

Good afternoon, everybody. Just to let you know that with me this afternoon is Fay Dodds, our IR Director. I'm going to assume that everybody has seen the results announcement released this morning and therefore rather than going through the numbers in detail, I will spend just a few minutes summarizing the key points from the first half before handing the call over to you for questions.

Overall, we're very pleased with the progress that Burberry has made in the first half of the year. Our financial performance was strong. The headlines are as follows:

Constant exchange rates revenue grew by 19% to £449 million. Adjusted operating profit also grew 19% underlying to £95.1 million, compared to £84.2 million in the same period last year.

Operating profit from licensing fell slightly in the half, hit by the yen weakness. That took just over £3 million off both sales and profit, but for retail and wholesale combined, sales grew by 17% and the operating margin expanded from 14% to 15.2%. Gross margin was up 300 basis points, reflecting in part the benefits of Atlas, whilst operating expenses increased as we support the business in its growth phase.

Adjusted earnings per share rose by 18%, and we've increased the interim dividend by 17%. Net debt at the end of September was £89 million, up from the end of March, largely as we increased stock to support growth and reflect changes in our business model.

We've made solid operational progress. Under our five key strategic themes, first of all leveraging the franchise, we've seen the Runway Collection nearly double in the first half and a strong performance from the London Collection. This is the first produced by the centralized design team under Christopher Bailey.

Under the second of our themes, intensifying non-apparel, we're seen continuing success in luxury handbags and shoes in particular. Luxury handbags now make up between 50% and 60% of handbag sales in our European and U.S. stores, for example. The average unit retail price for handbags is up more than 25% year on year, helping to drive retail store productivity.

Under the third of our themes, accelerating retail-led growth, we've opened a further 11 stores and 13 concessions in the half. These have used our new fixtures, which enabled more stock to be held on the sales floor, reducing the length of time it takes to serve customers, again driving retail sales productivity.

Under the fourth of our themes, investing in under-penetrated markets, we've seen excellent growth in the U.S. in all channels and double-digit comp growth from all of our emerging markets, including the Middle East. Our franchisees opened a further six stores in the half.

Under our fifth and final theme, operational excellence, we have continued to invest in the infrastructure to support this strong growth. This is in areas such as expanded distribution facilities, the global supply chain, and upgrading central functions, including design, merchandising and customer service.

We talked this morning about how we're facing an intense period of activity in the second half and this third quarter in particular. In this, our largest quarter, we're experiencing high volume growth whilst in the most demanding phase of SAP implementation, whilst at the same time rapidly evolving our global supply chain and our logistics functions.

But as Angela said in her quote this morning, we're pleased with our progress in the first half, and the diversity and balance we have across products, channels and regions gives us many opportunities for future growth.

With that, let me hand it back to the operator and we can now take questions.

Operator

(Operator Instructions) We have no questions in queue.

Stacey Cartwright

Thank you very much, everybody, for joining us. We look forward to talking to you again when we present on our third quarter results. Thanks very much.

Question-and-Answer Session

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Source: Burberry Group plc F2Q08 (Qtr End 9/30/07) Earnings Call Transcript
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