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UPDATE 4-Burberry to target shoes, purses in the recovery

* H1 adjusted op profit 86.3 mln stg, vs 83 mln forecast * H1 gross margin better than expected, but expenses higher

* H1 dividend up 4 pct at 3.5 pence a share

* Growth focused on non-apparel, retail, China and Americas

* Shares down 1.1 percent

(Adds more company comments, background, updates shares)

By Mark Potter

LONDON, Nov 17 Burberry (BRBY.L) is targeting growth in non-clothing ranges like shoes and purses in the economic recovery, the luxury goods group said on Tuesday, as it posted a smaller-than-forecast fall in first-half profit.

The 153-year-old group, sketching out its plans for the next three years, also said it wants to boost its presence in China and the Americas and attract younger shoppers via social media such as its recently launched artofthetrench.com Web site.

"While the last year or so has presented us as a management team with the most challenging conditions we've ever had to work through, we have been equally focused on how best to position Burberry for superior growth when the global economy recovers," Chief Executive Angela Ahrendts told analysts on Tuesday.

Burberry declined to say whether the recovery was firmly underway but said it was outperforming rivals and was confident its trademark trench coats and handbags, as well as leather goods, scarves and snoods would sell well this Christmas.

"We're very well positioned whichever way this goes," Chief Financial Officer Stacey Cartwright told reporters, pointing to big cuts in Burberry's inventory levels and also its ability to buy in stock quickly.

"Clearly there's a momentum in the brand at the moment. We want to make sure we don't miss a sale," she said.

Luxury goods firms have been hit hard in the recession. But industry leaders LVMH (LVMH.PA), Richemont CFR.VX and Hermes (HRMS.PA) have all recently reported signs of improving demand. [ID:nLJ55709] [ID:nLD701185] [ID:nL5586738]

Burberry, known for its camel, red and black check, has coped better than most in the downturn because it reacted quickly by slashing costs, jobs, stock and range assortments. Its recent collections have also received rave reviews.

BEATING FORECASTS

Operating profit before one-off items fell 19 percent at constant currencies to 86.3 million pounds ($145 million) in the six months to Sept. 30, beating analysts' average forecast of 83 million pounds, thanks in part to cost cutting.

Cartwright did not expect analysts to raise their full-year forecasts after they were lifted to about 190 million pounds following a better-than-expected sales update in October. The half-year dividend was up 4 percent to 3.5 pence a share.

Some analysts said the good news was offset by higher operating expenses as Burberry invests in its retail business and questioned whether it was running stock levels too tightly.

"Does Burberry have the supply chain to be flexible if demand picks up?," JP Morgan analysts asked.

Burberry shares, which have more than reversed the 70 percent slide they suffered last year, were down 1.4 percent at 591.5 pence by 1230 GMT, underperforming a 0.7 percent decline on the UK's benchmark FTSE-100 index .FTSE

Gross profit margins fell 30 basis points in the first half, better than forecasts for a drop of at least 200 basis points thanks to fewer discounted sales and to a cost-cutting programme which has seen the group shed over 1,000 jobs.

The net reduction in staff, taking into account new store openings, is about half that amount and Burberry currently employs around 6,000 people worldwide.

Burberry said it expected gross margins to improve in the second half, helped by lower stock levels which will reduce the prospect of discounting.

CEO Ahrendts told analysts a key aim for the coming years was for the group to double its non-clothing business, which currently accounts for about a third of total sales, with a focus on shoes and small leather goods.

Burberry, which has 122 stores, 255 concessions and 90 franchised shops, plans to increase retail selling space by 10 percent a year, including testing smaller-format stores, and sees the potential for over 100 stores in China, she added.

It will also expand its wholesale business, particularly in the Americas where it plans to double in size as well. (Editing by Greg Mahlich and Erica Billingham) ($1=.5941 pounds)

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