UPDATE: Burberry Sales Surge Ahead On Strong Luxury Demand

Luxury clothing and handbag retailer Burberry PLC (BRBY.LN) reported a strong rise in third-quarter sales as international demand for its iconic trench-coats and plaid-patterned accessories helped the company defy the U.K. retail downturn.

The company behind the red, black and camel-colored check design said sales rose to GBP574 million from GBP480 million in the three months to Dec. 31, a rise of 21% at constant currencies.

Burberry Chief Executive Angela Ahrendts said the company remains "focused on executing our proven core strategies to achieve long-term sustainable growth, while staying mindful of the challenging macro environment."

Burberry's stock-market listing and quintessential style may be British, but it derives the majority of its sales and profit outside the U.K., driven by global flagship stores and a network of department-store concessions.

Still, its performance in the Americas caused some investor concern Tuesday morning, after the group reported a slowdown in sales growth to just 4% in the third quarter compared with 27% in the first half, at constant exchange rates.

Shares fell more than 3% in early trade and at 0950 GMT the stock was down 22 pence, or 1.7%, at 1278 pence, valuing the company at GBP5.61 billion.

Chief Financial Officer Stacey Cartwright told reporters on a conference call that the slowdown in the Americas was caused by the company's decision to stop discounted sales to department stores in favor of full-priced merchandise, part of Burberry's strategy to maintain and improve the exclusivity of its brand.

She insisted the slowdown in sales growth didn't reflect any underlying weakness in the division, and that sales in its owned stores across North and South America were still growing by high single digits and sales to department stores and concessions remained strong.

Burberry's growth illustrates a stark divergence of fortunes for U.K.-listed retailers that has become more marked as the mid-market retailers have come under extreme pressure over Christmas, while demand for luxury goods booms.

Luxury retailers have enjoyed a strong turnaround in their fortunes, driven by gains in emerging markets, particularly China, which has proved a powerhouse of sales, both domestically and from Chinese tourists buying luxury goods in Europe.

Swiss watch maker and jeweler Compagnie Financiere Richemont SA (CFR.VX) Monday reported a 24% jump in third-quarter revenue and said it expected its full-year operating profit to be "significantly higher" than last year.

There had been some concern that the euro-zone crisis and stock market fluctuations may have dampened demand for high-end goods, but Burberry's Cartwright said demand in Northern Europe remained strong, both locally and from travellers, while Southern Europe remained more subdued.

Burberry said retail sales from its wholly-owned stores, which make up around 70% of revenue, jumped 23% to GBP417 million and wholesale revenue, derived from department-store and wholesale orders, rose 15% to GBP130 million, both at constant exchange rates.

The company reiterated its guidance for the full year, with wholesale revenue expected to increase by mid-single digit percentages at constant exchange rates.

Burberry has been aggressively expanding its flagship store portfolio in high-profile international cities that attract both local wealth and the travelling luxury consumer. This has helped to swing the balance of revenue into its higher-margin owned retail sales division.

Historically, the company has opened about 10% new space a year but Cartwright said this could rise in the 2013 fiscal year, once budget decision have been made.

Burberry's fiscal year ends March 31 and it reports fourth-quarter sales April 17.

-By Kathy Gordon, Dow Jones Newswires; +44-207-842-9293; kathy.gordon@dowjones.com

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