Burberry pushes ahead with float

Sarah Marks12 April 2012

RETAILER GUS has set an indicative price of between 230p and 290p for shares in the flotation of its luxury goods and fashion arm Burberry. It said the shares should start trading on 12 July. The partial float, via a global offer to institutions, will value Burberry at between £1.15bn and £1.45bn and could make its American chief executive Rose Marie Bravo a total of £10m.

The luxury goods market has been struggling since 11 September, leading some analysts to question the timing and pricing of the float. The market had initially looked for a value of £1.2bn to £1.8bn.

Last week Gucci posted a worse-than-expected fall in first-quarter profits. Burberry said its autumn/winter sales were likely to be flat, with wholesale orders of the new collection, 'broadly unchanged compared to the prior year'.

Burberry denied this meant the brand's rejuvenation had been a one-off hit with the public, saying it primarily reflected 'the effect of the current difficult macro-economic environment on the luxury goods sector and soft domestic demand in Spain'. It also warned that the yen-sterling exchange rate would mainly wipe out the expected increases in Japanese licence income.

Sales at Burberry's retail operations 'enjoyed double-digit revenue growth' in the first 11 weeks of the current financial year, but Burberry offered no information on like-for-like sales.

Although this is the key measure for UK retailers, Burberry said it should be compared with other companies in the European luxury goods sector such as Gucci and LVMH, which do not reveal these figures.

Selling 25% of the issued share capital at the mid-point of the price range would raise a net £282m. Most of this will be spent repaying inter-company debt, leaving Burberry with £10m in cash.

Bravo will be paid a basic salary of £1m with a 100% performance-related bonus. She will be granted shares worth 1% of the company's value and options over another 0.5%, giving her a total package worth up to £10m over the next three years.

Burberry also named Philip Bowman, group chief executive of Allied Domecq, as a non-executive director alongside the former president and chief executive of L'Oreal USA, Guy Peyrelongue, and GUS finance director David Tyler.

Burberry will be chaired by GUS chief executive John Peace. Michael Metcalf, who worked with Bravo at Saks Fifth Avenue, is finance director.

Analysts said Burberry had been 'priced to go' to get the float away. John Baillie of SG Securities said: 'If you accept it is a luxury brand, and there is some debate on whether it is, it has been priced conservatively.' Burberry would have a price-earnings ratio of 15-19 while Gucci generally trades at 25-30. Burberry is priced at between two and 2.5 times sales but shares in other luxury brand companies are nearer three times.

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