Mulberry warns on profits after poor Christmas

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LUXURY handbag maker Mulberry yesterday warned that profits would “substantially” miss expectations after a tumble in UK sales over Christmas.

The firm revealed retail sales went into reverse in the crucial festive trading period, down seven per cent in the eight weeks to January 25 as it lost out in hefty discounting in the UK.

Its trading troubles were compounded by disappointing wholesale orders in South Korea – its largest Asian market – with the group admitting trading in the country had been “significantly” more challenging than expected.

Shares plunged after the alert, which follows a tough couple of years for the group, which has suffered falling profits and was left reeling by the departure of its renowned creative director Emma Hill last autumn.

Mulberry is still searching for a replacement for Ms Hill, who was credited with turning the firm from a trusted briefcase and wallet maker into an international fashion powerhouse with a clutch of celebrity fans.

Chief executive Bruno Guillon said yesterday: “Due to tough trading conditions over the Christmas period which saw significant discounting across the market, Mulberry has experienced lower than expected UK retail sales which, together with wholesale order cancellations from Korea, will adversely impact our profit this year.”

Sales rose by three per cent in the nine weeks to November 30, but fell sharply in the following eight weeks to leave the figure three per cent lower overall in the first 17 weeks of its second half.

The figure includes international sales, which rose 40 per cent in the period, implying a far steeper decline in the UK.

It added that order cancellations in Korea were expected to be significant and were likely to leave wholesale revenues around 10 per cent lower over the year to March 31, which would see overall annual revenues remain flat.

The group joined other retailers such as Debenhams and Mothercare in warning over profits after a disappointing Christmas.

But one of its closest rivals – luxury good groups Burberry – was able to offset difficult high street conditions thanks to soaring demand in China and a burgeoning online business, which sent its festive sales 12 per cent higher.

Analysts had expected Mulberry to post pre-tax profits of £26.9m for the year to March 31, against £26m a year earlier.

The warning means Mulberry will see another year of falling profits, which slumped by more than a quarter in the 12 months to last March.

One of Britain’s export success stories, Mulberry’s fortunes have been hit by tougher conditions in Asia and in its domestic UK market, which still accounts for more than 60 per cent of trade.

It has warned over profits three times in the past 18 months.

Helal Miah, investment research analyst at The Share Centre, said: “The hope for a turnaround in the fortunes of Mulberry had been its international expansion plans, which have actually performed very well, up 40 per cent during the same period. However, starting from a low base, this turnaround has been too slow with the group still heavily reliant on UK sales.

“We are downgrading our recommendation for investors to a ‘hold’ as our confidence of the group’s transition to a more international business has been dampened.

“We still believe that this will be achieved in the long term, however there is likely to be too many bumps along the way to warrant the risk.”

Retail analyst Nick Bubb said the transition from a UK success story into a global brand did not appear to be going well: “It’s all gone a bit wrong for poor old Mulberry since the spring of 2012, just after Bruno Guillon joined as CEO from Hermes, when its share price was nearly 2500p and the market cap was getting on for £1.5bn ($2.49bn).”

Mr Guillon said profit for the year to March 31 was expected to be around £19m, almost £8m below analyst forecasts.

Despite an unhappy Christmas, the group is sticking to its growth strategy, Mr Guillon said.

Mulberry has stores in Leeds, York and Sheffield.