Expansion costs hit Mulberry profit

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Luxury handbag maker Mulberry disclosed a profits fall of 28 per cent today as it admitted that it has yet to replace creative director Emma Hill six months after she announced her departure.

The fall in pre-tax earnings to £7.2m for the six months to the end of September came despite a four per cent increase in like-for-like retail sales.

This was wiped out by a five per cent drop in wholesale revenues, driven by lower orders in Europe, and the cost of overseas expansion. Mulberry announced a flagship Paris store is due to open in 2014/15.

The company was shaken by the announcement of Ms Hill’s departure earlier this year, which sent shares tumbling.

She was credited with turning the firm from a trusted briefcase and wallet maker into an international fashion powerhouse with a clutch of celebrity fans, and was last year made a CBE.

Today the company admitted that it was continuing the search for a new creative director, but that design and product development teams were working on “the seasonal refreshment of our collections as usual”.

UK total retail sales climbed five per cent while international sales in Mulberry’s own stores were up by 29 per cent. Total first half revenue rose two per cent to £78.1m. The profits decline mirrored a similar fall in the full-year.

Mulberry said it faced increased competition from mid-market brands, which hit its lower-priced handbags, but new products in the £1,000-plus range were doing well, demonstrating the “ability to attract a high-end luxury customer”.

It has completed the construction of a new factory in Somerset and is training 240 new staff. The site is expected to be at full capacity by mid-2014, meaning Mulberry will be making 50 per cent of its handbags

in England for the autumn/winter season.

The company said it expected the lower retail sales trend to continue for the rest of the financial year to the end of March.

In the nine weeks to November 30, total retail sales were up three per cent, below the sic per cent trend for the half-year.

It indicated total investment for the year at £19m, adding: “We continue to focus on the transition of Mulberry from a UK success story into a global brand.”