Mulberry Half Year Profit Plunges 36% on Improvement Costs

Mulberry’s new Cecily, Medium Cecily and Cecily Tote, finished in soft croc printed leather.

Somerset, England—Mulberry, the British luxury leathergoods house, had warned about a profit decline in October. Today, the company confirmed that despite a slight increase in sales, its first half profit before taxes plunged 36%.

For the six month ending Sept. 30, makers of the Alexa and Del Ray handbags reported a profit of 10 million pounds, down from 15.6 million pounds in 2011.

According to Mulberry’s management, the profit decline was the result of operating costs rising 4.6 million pounds, which included 3.7 million pounds from an increase in its international stores and “quality initiatives” pushing down gross margins as well as “the challenging economic environment.”

Gross margin narrowed to 61.3% compared to 66.2% in 2011.

First half sales increased 6% to 76.5 million pounds. Wholesale revenue was down 4%, but retail sales have begun to improve in the last two months, rising 11%, the company said. Retail revenue was up 13% to 46.5 million pounds, with online sales rising by 44%.

Emphasis on British Made

Bruno Guillon, Mulberry’s chief executive who joined in March, said he plans to push ahead with his goal to revamp the wholesale division so it would return to plus sales by 2013/14 despite a 10% decline in annual revenue this year.

“We have rationalized certain wholesale accounts and refocused the outlet business which has impacted financial performance in the short term,” Guillon said. “However, we firmly believe that this is in the long term interests of transforming Mulberry into a global luxury brand.”

As part of his plan to raise Mulberry’s quality and prestige, Guillon plans to increase production at its Somerset factories. While some 20% of production comes from it now, “within three to four years we plan for all items to be made in the UK, Spain, Italy and Turkey with no products made in the Far East,” he added. “British leather craftsmanship is central to our brand and we have now commenced construction of our second UK factory which will create 300 new jobs and open during the summer of 2013.” Guillon said

The company also reiterated its commitment to international expansion in tourist location in Western Europe, North America, China and Japan with a target of opening 15 to 20 stores a year.

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