Mulberry Gives Profit Warning as Holiday Sales Disappoint

mulberrySomerset, England—Citing the impact of more affordable brands such as Michael Kors and the need for “more excitement” in its assortment, Mulberry today gave its third profit warning in 18 months.

The British leathergoods company said its total retail sales for the 17 weeks to Jan. 25 were down 3% despite a 20% increase in its international sales. Its holiday revenue, the eight weeks to Jan. 25, was even worse, total retail sales fell by 7%.

Moreover, the company noted that in “recent days” it has been evident that wholesale order cancellations from South Korea are likely to be “significant.” Indeed, Mulberry now expects wholesales for the year ended March 31 to be 10% lower than the previous year.

Therefore, Mulberry forecast total sales for the fiscal year would basically be in line with the previous fiscal year. News of the warnings sent shares of Mulberry down about 25% in trading today.

Creative Director Position Still Vacant

Before today’s warnings, analysts’ average estimate was for a net profit of 26.9 million pounds but already Barclays revised its forecast downward to 19 million pounds.

In his defense of the company CEO Bruno Guillon blamed “huge” discounts that some of its rivals offered during holiday for the lower-than-expected sales in the United Kingdom which still accounts for 63% of the brand’s sales.

Guillon also said cited intense competition from affordable luxury brands such as Michael Kors, which has been expanding its UK business.

Since assuming his role some two years ago coming from Hermès, Guillon has moved to open more stores internationally and to reduce reliance on the UK market.

“Mulberry is a beautiful English luxury brand, 50% of our bags are produced in the U.K.,” Guillon said. “We haven’t been communicating enough about our second workshop we opened in June in Somerset,” he said, although it hasn’t reached full capacity yet.

Like many luxury leathergoods brands, Mulberry also embarked on a move upward, offering more bags over 1,000 pounds and above. Guillon admitted that customers who had previously been spending 400 to 600 pounds on a Mulberry were being lured away by rivals offering bags at 250 to 300 pounds. Yet the more affluent customers are moving even higher end.

Mulberry is also looking to fill the creative director position which has been vacant since last fall when the highly respected Emma Hill left.

Some analysts expected some type of correction at Mulberry in the coming months. According to independent retail analyst Nick Bubb said, “It’s all gone a bit wrong for poor old Mulberry since the spring of 2012, just after Bruno Guillon joined as CEO from Hermès, when its share price was nearly 2,500 pence and the market cap was getting on for 1.5 billion pounds. After today’s big profit warning, the share price is more like 700 pence.”

Analysts at Barclays said they believed a swift appointment of a new creative director is “important” if Mulberry is to succeed in moving from a domestic UK brand to an international success.

 

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