APPLE INC. 
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LONDON (Reuters) - Demand for coats and large leather bags helped Burberry (>> Burberry Group plc) to top Christmas sales forecasts, though the British luxury brand said its incoming chief executive might have to cope with a hit to profit from a stronger sterling in the months ahead.
Shares in the 158-year-old firm known for its camel, red and black check pattern rose up to 7.1 percent on Wednesday, as investors welcomed the strong sales in an industry jittery about volatile demand in China - until recently its engine of growth.
"We believe many markets are still under-penetrated for the brand," HSBC analysts said of Burberry's prospects.
The jury is out on whether sales growth in the luxury goods industry this year will match, drop or slightly outpace the 10 percent rise recorded last year at constant currencies.
Analysts at Bank of America Merrill Lynch and HSBC are forecasting a slight slowdown to 9 percent while others are expecting growth of 11 percent. Much will depend on China, where slowing economic growth and a government crackdown on conspicuous consumption have cooled demand in recent quarters.
Burberry, whose long-term chief creative officer Christopher Bailey is due to take on the role of chief executive later this year, said its retail revenues rose 14 percent in the three months to December 31, the third quarter of its fiscal year.
Finance chief Carol Fairweather told reporters comparable store sales in China were up by a "double-digit" percentage.
At 1045 GMT, Burberry shares were up 4.8 percent at 1,540 pence, the biggest rise by a European blue-chip stock <.FTEU3>.
The stock has fallen 7 percent since October 15 when Burberry said Chief Executive Angela Ahrendts would step down in mid-2014 to take up a job at Apple (>> Apple Inc.) and hand over to Bailey, who will have a dual role, although the firm has since named a chief design officer to assist him in his creative functions.
STERLING HEADWIND
Wednesday's share price gains came despite Burberry highlighting the potential impact of the strengthening of sterling, particularly against dollar-denominated currencies, when it translates overseas profits back into sterling.
"If current rates persist we think that will adjust our profits by about 5 million pounds ($8.2 million) through the rest of the (2013-14) year," Fairweather said.
"That's a translation impact, the underlying business remains strong," she said, adding that Burberry's guidance for its retail, wholesale, beauty and licensing businesses remained unchanged from that given in November.
Sterling has risen about 8 percent against the U.S. dollar over the past six months.
Bailey faces some significant challenges when he takes over, including the planned integration of Japan into the group on expiry of an apparel licence in 2015, as well as growing revenue in fragrance and beauty after the firm began directly operating that business last year.
"We're in the transition phase and it's going very well," Fairweather said, referring to the management changes.
Burberry made 528 million pounds of retail revenue in the three months to December 31. That compared with analysts' average forecast of 520 million pounds, 464 million pounds in the same period last year and first-half growth of 17 percent.
Comparable store sales rose 12 percent, compared with 13 percent in the first half, reflecting double-digit growth in Asia Pacific, and mid to high single-digit growth in both the Americas and EMEIA (Europe, Middle East, India and Africa) divisions.
(Additional reporting by Astrid Wendlandt; Editing by Paul Sandle and Mark Potter)
By James Davey
