Cat out of the Mulberry bag as profits fall

Shares in the luxury handbag maker Mulberry have tumbled following 'severe' profit warning.

by Rebecca Burn-Callander
Last Updated: 19 Aug 2013
Mulberry shares dropped 25% to 985p in early trading today after the company warned that revenues for the year to March 2013 would be below expectations. This is having a knock-on effect on the bottom line too. A statement from Mulberry admits: ‘We now expect full year profits to be below last year’. Wholesale orders have fallen 4% in the last six months, it revealed, all because of weak consumer demand in Asia. It seems the Mulberry tassel bag is finally out of vogue on the street of Hong Kong.

Mulberry’s had a rough time of it of late. Back in June, the company issued its first warning of a sales slowdown, causing its share price to plummet 22%. Muberry’s market cap has lost a total of 60% of its value since May.

The problem for Mulberry and other luxury retailers is that growth in the powerhouse economies of Japan and China is slowing. Burberry too released a profit warning last month, wiping a billion off its value. The World Bank cut its growth forecasts for the Chinese economy only last week, downgrading it to 7.7% from 8.2%. Japan has also been consistently revising down its growth numbers this year: between April and June 2012, the economy grew 0.7% instead of the 1.4% anticipated.  

But the leather hasn’t lost all its sheen in luxury goods. Mulberry said total revenue rose 6% to £76.5m in the six months to 30 September. Retail revenue is also up 13% to £46.5m, which is an increase of 7% on a like-for-like basis. The problem lies within its international wholesale arm, which is down 4% to £30m.

Mulberry insists that given the economic climate it is still ‘strongly profitable’ with enough cash on the books to fund future expansion – it created 300 new jobs only last month. But the markets are yet to be convinced. Investors are betting against in luxury sector in droves today, sending Burberry’s share price down 4%.

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