However cost of sales increased alongside growth in sales revenue leading to a slight decrease in gross margin. Burberry The Beat drives European sales The US-based company that derives most of its revenue from its European markets reported $123.2m (€79.7m) worth of sales for the quarter, $110.6m worth of which came from its operations this side of the Atlantic. This is a 45 per cent increase on the first quarter last year (35 per cent in comparable exchange rates) and was mainly driven, on the European side at least, by the success of the new Burberry fragrance. "Most of the gain in European-based sales was due to the 53 per cent increase in Burberry fragrance sales (34 per cent in local currency) with the successful worldwide launch of Burberry The Beat coupled with good performance of the brand's existing lines," said CEO Jean Madar. Commenting on the 31 per cent rise in US sales for the quarter Madar said: "We continue to add new products, adapt existing ones, as well as replenish stock for our specialty retail partners." Gross margin could not keep up However the gross margin for the quarter did not follow the impressive increase in sales, dropping slightly from 61 to 60 per cent. The company attribute this to a declining US dollar against a strong Euro, which affected European product sales to US customers. In these cases the costs of sales were incurred in Euros however the sales revenue was received in dollars, contributing to a slight decrease in gross margin. Furthermore, the company also noted that costs of the Burberry sales for the quarter have not yet been fully met and the chief financial officer Russel Greenberg warns that the advertising costs for the quarter will fall into next quarter. "While 2008 first quarter sales include a major contribution from the launch of Burberry The Beat a significant part of the advertising expenditures will fall into our second quarter," Greenberg explained. However, due to a drop in general and administrative costs as a percentage of sales, operating margins rose from 13.9 per cent to 15.4 per cent. Overall, net income for the quarter rose by 50 per cent to reach $8.7m. On the back of these results the company is raising its expectations for the year ahead and Greenberg predicted $460m worth of sales for the year with a net income of $26.8m, assuming the dollar remains at current levels.