Burberry to buy out franchises in China

By Andrew Roberts (China Daily)
Updated: 2010-07-17 11:18
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PARIS - Burberry Group Plc, the UK's largest luxury retailer, will take control of its franchised stores in China for 70 million pounds ($108 million) in a transaction that may boost earnings by almost 10 percent.

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The acquisition of stores and related assets from franchise partner Kwok Hang Holdings will add as much as 20 million pounds to operating profit in the year through March 2012, the London-based company said on Friday in a statement. Burberry aims to complete the all-cash transaction later in 2010.

"With a solid foundation of 50 stores across 30 cities, operational expertise and strong brand momentum, this is an optimal time for Burberry to integrate this business," Chief Executive Officer Angela Ahrendts said in the statement.

Retail sales in the Chinese stores, which were previously reported as wholesale revenue, totaled 75 million pounds in the year through December 2009, generating profit of about 14 million pounds for the local franchisees, Burberry said. Under the new agreement, Burberry will take over the outlets' operational management, while existing franchisees will hold a 15 percent stake in their business, the company said.

Burberry rose as much as 26 pence, or 3.3 percent, to 816.5 pence and was up 3.2 percent in early morning trade at London. The stock has gained 36 percent this year, valuing the retailer at 3.6 billion pounds.

Group operating profit in fiscal 2010, excluding exceptional costs, was 219.9 million pounds.

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