Mulberry warns on profits

In a major profits warning, Mulberry said international sales were below expectations in the first half of 2012 and that wholesale revenues fell 4pc.

The company’s shares fell 305, or 23pc, to £10.15.

The warning came just a month after rival luxury brand Burberry saw its shares fall more than 20pc when it reported that sales growth had ground to a halt.

The statement from Mulberry led to analysts questioning whether the spectacular growth of the company could be over.

“Mulberry’s profit warning is severe. Given that it has had a tremendous run in terms of both share price and profits, it is now at the crossroads,” said Philip Dorgan at Panmure Gordon.

“Either we were wrong about the scale of its international opportunity, or this is just a blip.”

The value of Mulberry shares soared to almost £25 in April on the back of demand for its products from Asia.

However, they have now more than halved in value because of doubts about the health of the Chinese economy and whether Mulberry can continue to attract customers.

The company’s handbags sell for as much as £3,000 and it has enjoyed particular success with the Bayswater and the Alexa, which is named after celebrity model Alexa Chung and sells for at least £750.

However, sales from these handbags is now slowing and Roger Mather, the finance director, admitted the company is finding it “harder” to replace slowing sales from the Alexa in the US and Asia than it is in the UK. “We have taken two steps forward, one step back,” Mr Mather added.

Overall for the half-year Mulberry reported a 6pc rise in revenues to £76.5m, including a 7pc like-for-like increase in retail sales.

However, there was a 4pc decline in wholesale, while international retail sales grew below expectations, albeit still by 41pc.

The slower than expected growth in revenues means annual profits will be below last year, which at the pre-tax level were £37m.

Mr Mather primarily blamed the profits warning on Mulberry cutting wholesale networks in Europe as well as a slowdown in Asia.

Bruno Guillon, who took over from Godfrey Davis as chief executive in March, has cut the number of multi-brand shops in Europe that Mulberry products are sold in so that the company can focus on sales in its own shops.

This rationalise has coincided with a slowdown in the luxury market, but Mr Mather insisted Mulberry did not regret shrinking its wholesale footprint.

“There will be no rethink,” he said. “It all makes sense as part of Mulberry growing up.”

There could, however, be a rethink of Mr Guillon’s incentive scheme. The Mulberry chief executive was awarded 200,670 shares upon joining the company, but can only cash in these shares if the share price exceeds £23.02.

“He needs to be given a meaningful equity stake that motivates him,” Mr Mather said.

The Mulberry remuneration committee could now grant new shares to management in December.


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