- Posh handbag maker slips into loss
- Warns higher investment spend to continue
- UK sales slump 10% amid falling consumer confidence
Shares in British fashion group Mulberry (MUL:AIM) were marked down 14% to 245p after the posh handbag maker lurched into loss for the half to 1 October 2022 as higher investment spending pulled the retailer into the red.
Backed by Mike Ashley’s Frasers (FRAS), Mulberry flagged an improved year-on-year retail sales trend over the eight weeks to 26 November and said it is well prepared for Christmas, though it also warned the wider macro-economic environment continues to present uncertainty, ‘in particular with regards inflationary pressures’.
GROWTH ABSENCE DISAPPOINTS
Famed for its high-end women’s handbags, Mulberry reported a 1% drop in group revenue to £64.9 million for the half, despite having raised its prices.
This subdued sales showing was underpinned by a reassuring performance in China delivered despite Covid restrictions, though the current turmoil in the country could undermine this positive trend.
While you would expect its wealthy clientele to be insulated from cost-of-living pressures, Mulberry’s UK retail sales fell 10% to £34.1 million and international retail sales nudged down from £17.6 million to £17.5 million.
MULBERRY’S MATERIAL LOSS
The Bath-based fashion house also swung from adjusted pre-tax profits of £4.5 million to losses of £2.8 million as it continued to execute on its direct-to-consumer (DTC) strategy by investing in marketing and technology.
Mulberry warned this investment will continue ‘in the current year and beyond’ in order to ‘underpin our wider business omni-channel growth for the longer term’.
Since September, Mulberry has experienced an improved retail revenue trend and sees second half gross margin in line with the first half’s 71%, with management actively managing cost inflation through price increases and energy price hedging.
CEO Thierry Andretta insisted the beautiful bags-to-leather goods group had delivered a ‘resilient performance across the group, supported by strong international demand and continued investment in the UK.
‘Looking ahead, we are confident in our ability to execute our strategy and to continue to invest across the group for our future growth, in spite of the challenging economic and geopolitical backdrop.’
VIEWS FROM THE EXPERTS
Julie Palmer, partner at Begbies Traynor (BEG:AIM), said Mulberry’s results revealed ‘yet another retailer struggling to manage the current economic backdrop. In the UK, revenues fell 10% thanks to a consumer confidence crisis and growth is pretty much flat everywhere else’.
Palmer added: ‘It’s true that luxury fashion tends to suffer less than other retailers during a downturn thanks to its higher earning customer base but with Christmas around the corner and consumers already feeling the pinch, one has to ask if buying a new handbag will remain a priority.’
Pointing out that Mulberry trades at a 30% discount to peers, Shore Capital’s Eleonora Dani said the current valuation ‘does not reflect its leading ESG efforts or the great emphasis on the direct-to-consumer strategy, which could drive a premium rating. ‘However, we note the stock’s illiquidity so a discount might need to be factored in when looking at the business.’
