Has Mulberry lost its magic?

Shares drop 28% after the luxury goods company announces another profit warning following weak holiday sales.

by Elizabeth Anderson
Last Updated: 20 Mar 2014

Once a brand that could do no wrong, Mulberry has spooked the markets by warning that annual profit would be ‘substantially’ under forecasts due to heavy discounts over the festive period.

Mulberry’s share price dropped as much as 28% in mid-morning trading, wiping more than £140m off the company’s value which is currently hovering around £400m.

For the 17 weeks to January 25, total retail sales were down 3% compared to the year before. Meanwhile during the crucial Christmas period, recorded as the eight weeks to January 25, sales dropped 7%.

This is the third profit warning in 18 months for the luxury goods retailer, famous for its £900 leather Bayswater handbags. In December, Mulberry posted a 28% fall in pre-tax profit at its half-year results, following a profit warning in October which sent shares down 24%.

‘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,’ chief executive Bruno Guillon said. A fall in orders from South Korea also weighed on profits, he added.

It follows the departure of creative director Emma Hill, who quit in June after six years at the Somerset-based firm over disagreements with management over strategy. She is credited with turning the brand into an international fashion brand and attracting a number of celebrity fans including the Duchess of Cambridge and Claudia Schiffer.

Mulberry's share price over 5 years:


Source: www.lse.co.uk

Traditionally touted as ‘affordable luxury’, Mulberry has recently focused on moving more upmarket. The company has pushed up prices and added a number of lines priced up to £1,500 to keep customers who might be tempted to upgrade to more expensive rivals.

However, there are signs that strategy isn’t working. When Guillon joined as CEO from Hermès in spring 2012, Mulberry’s share price was nearly 2500p, valuing the company at around £1.5bn. Its shares are now trading for around 661p, giving the company a market cap of around £400m.


   


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