Mulberry shares plunge after shock profit warning

 

Shares in Mulberry plummeted nearly 30 per cent in early London trading after the luxury brand issued its third profit warning under chief executive Bruno Guillon.

The Somerset and London-based group - famous for its tie-ups with celebrities such as Alexa Chung and Lana Del Rey - warned annual profits would be well below market expectations, blaming heavy discounting in the UK by rivals over Christmas.

Chief executive Bruno Guillon - who joined in March 2012 from upmarket label Hermes - said that, despite rival brands discounting from early December, Mulberry “decided not to discount until December 26 and this hurt us.

“But I do not want to enter a discounting war. It will hit margins.”

Sales in the 8 weeks to January 25 - including Christmas - fell 7 per cent compared to the same period a year ago, contributing to a 3 per cent decline in the 17 weeks to January 25.

Analysts had forecast Mulberry’s pre-tax profit for the year to March 2014 would be £26.9 million, but Guillon said it would now be around £19 million.

The warning saw shares tumble 250p - or 27 per cent - to 654p. The stock had reached an all-time high in May 2012 of 2472p, but since then have fallen more than 73 per cent.

Mulberry also said order cancellations from its Korean customers meant wholesale sales are likely to be 10 per cent down on a year ago which would wipe out retail sales growth.

The brand is still searching for a new designer and cancelled its show for London Fashion Week next month after creative director Emma Hill left in 2013 after six years at the group.

Guillon, who has been trying to turn the brand from a quirky English firm to a global luxury name. said the group has a shortlist of candidates and should be able to reveal a new creative director within two months.

Without a designer it has struggled to find the next “It bag” and sales of its most recent hit – the Alexa bag - have waned since their peak.

Guillon said: “Yes it would be great to have the next It bag but behind the scenes we are investing and changing and the future supply chain will be in place. So now what we need is to bring back the excitement to the brand.”

He said they recently hired a new brand director and when the new designer joins he hopes the group will be back on track.

He said: “I am disappointed and the shareholders are disappointed it is taking time. I would like to go faster. But the shareholders understand and we are taking the right steps. This is a long term project.”

The group has only a small number of shares in free float with Singapore's Ong Beng Seng, wife Christina Ong and family owning more than 56 per cent of the company.

Mulberry follows US brand Coach which earlier this month issued a disappointing update with US comparable sales down 13.6 per cent for the second quarter.

Mulberry has been focusing on British made products with the recent opening of a new factory. Two years ago less than 20 per cent of products were made in the UK and now 50 per cent are made in Somerset.

Guillon said the brand needs to communicate this more and has launched new marketing initiatives with expansion focused on the US and Europe.

Although the group has been criticised for raising prices he said the core collection consists of bags between £700-£1000. He said compared to brands made in Asia his products were a “super-bargain”.

But Luca Solca, luxury analyst at Exane BNP Paribas, said: “Mulberry has tried to move upmarket - emulating recent successes by brands like Bottega Veneta. The problem Mulberry faces is that its credibility in the high-end is weak.

'I was selling Mulberry bags well when they cost EUR 800, but nobody wants to buy them at EUR 2000' a leading multi-brand European retailer told me today. I fear that the repositioning plan by Mulberry is over-ambitious and lacks a bedrock to project a credible high-end image.”

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