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Burberry still a hit in Asia, currency headwinds loom

Strong sales in Asia helped British luxury fashion brand Burberry post a 19 percent rise in second-half revenue, despite fears of the high-end retail market in China cooling down.

The company, known for its iconic check pattern designs, posted revenue of £1.3 billion ($2.2 billion), in the six months to March 31, driven by double-digit percentage comparable sales growth in China and Korea.

"With the management transition well underway, Burberry begins a new year with Beauty firmly established as the fifth product division and investment in flagship markets, such as Shanghai, further increasing the brand's appeal to the core luxury customer at home and when travelling," Burberry CEO Angela Ahrendts said in a press release.

The Burberry shop in London, England.
Getty Images
The Burberry shop in London, England.

Analysts feared that a crackdown on corruption, gift-giving among public officials and exuberance in China could have a negative impact on luxury brands, but Burberry has not disappointed.

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China's GDP slowed to 7.4 percent in the first quarter of 2014, but Burberry continues to target the country, opening a new flagship store in Shanghai based on its much-loved shop on London's Regent Street.

The brand's appeal to a younger audience as well as successful social media campaigns have put it in a strong position in the world's second-largest economy, Rahul Sharma, managing director at Neev Capital told CNBC.

"Some of the soft luxury names like Burberry were never as badly impacted by the crackdown," Sharma said in a phone interview.

"Burberry has been helped by the fact that it appeals to a younger consumer. I think it shows there is still a lot of interest in luxury goods in China. It says something about Burberry's execution and its products. There is a lot of newness and lots of excitement."

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Burberry's men's, women's and accessory sectors all posted double-digit growth, helping raise retail revenues by 13 percent to £928 million in the second half.

The company's beauty segment, which only launched last year, made £97 million, driven by two "Brit Rhythm" fragrance launches. Beauty products offer a lower entry point for consumers who aspire to own the Burberry brand, according to analysts.

FX, leadership headwinds

But the company warned that as an indication, rebasing full year 2014 retail and wholesale profit for current exchange rates, particularly the strong sterling, would reduce reported profit by about £30 million.

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Investors have also expressed concerns over the impact the leadership change could have at Burberry. Current CEO Angela Ahrendts will leave the company to join Apple next month, as Christopher Bailey takes the helm while keeping the role of the brand's lead designer.

"It is uncommon to see the designer at the helm of a luxury company," Mario Ortelli, senior European luxury goods analyst at Sanford Bernstein told CNBC in a phone interview.

"Usually the creative designer is different from the CEO, so Bailey has to show investors that he has the skills required."

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