Mulberry Profits Fall 36% as Costs Rise

Mulberry has blamed falling wholesale revenues and slippage in gross margins for a profit fall of more than a third.

The fashion retailer said higher input costs for materials such as leather meant gross margins declined to 61.3 per cent from 66.2 per cent in the six months to the end of September, contributing to a 36 per cent decline in pre-tax profits to £10m.

Wholesale revenue fell 4 per cent to £30m due to falling consumption in Asian markets. The management also reduced sales to mid-market department stores in an effort to boost the brand’s exclusivity despite a 6 per cent rise in overall sales to £76.5m.

Bruno Guillon, chief executive, said that despite the profit drop Mulberry would continue with its international store roll out as planned.

“The international retail rollout is on track with 17 to 20 new store openings expected for the full year,” he said. “During the period, we have rationalised certain wholesale accounts and refocused the outlet business which has impacted financial performance in the short term . . . we firmly believe that this is in the long term interests of transforming Mulberry into a global luxury brand.”

Retail revenue, made through the company’s own stores, rose 13 per cent to £46.5m, boosted by four new stores during the period, while like-for-like sales rose 7 per cent. Diluted earnings per share fell from 19.2p in 2011 to 12.9p and the management has not recommended an interim dividend, in line with last year.

Weakening demand for its handbags and other items – especially slowing growth in Asia after three years of robust demand there – precipitated a profit warning last month that saw Mulberry shares tumble more than a fifth.

The share price fall was linked to concerns that Mulberry might be suffering from the same consumer pressures on sales that have led to investor nervousness in other luxury goods businesses, including LVMH of France and the UK’s Burberry.

Mr Guillon, however, said full-year revenues and profits would be in line with market expectations.

Mulberry shares rose 10p, or 0.9 per cent, to £11.65 in mid-morning trading.

Luxury Retail