News Column

Mulberry Resets Strategy As Profit Falls By 60% Over Two Years

June 12, 2014

Rowena Harris-Doughty



LONDON (Alliance News) - Mulberry Group PLC reported Thursday another hefty drop in annual profit, with the luxury good maker saying its recent results were partly hit by a payout to former Chief Executive Bruno Guillon, who left the company in March after presiding over two years of profit declines.


The British fashion company reported a pretax profit of GBP14.0 million for the year ended March 31, which was in line with its guidance it gave in April, but represented a huge drop from the GBP26.0 million it reported a year earlier, and the GBP36.0 million the year before that.


The luxury bags, clothes and accessories maker came under scrutiny under the control of Guillon, who joined the company in 2012 from luxury French brand Hermes. Mulberry was accused of pricing itself out of the market by raising its prices too quickly.


Under Guillon's helm, Mulberry issued a profit warning four times in just two years. Mulberry announced his departure with immediate effect in March, but the company's reputation as a brand in comparison to British rivals such as Burberry Group PLC, has been damaged.


Mulberry said its profit fall in the year just ended was partly due to an increase in store opening costs in the US, resulting in an impairment of GBP2.7 million, as well as pay out costs to Guillon, who received GBP1.2 million.


The company left its dividend unchanged at 5.0 pence per share for the year.


As well as profit, revenue has fallen. In the year just ended, sales fell to GBP163.5 million from the GBP165.1 million in revenue reported a year earlier, and GBP168.5 million the year before that. While retail sales rose 2%, driven by store openings, they were down 3% on a like-for-like basis, and wholesale sales declined 6%.


The company said it is now taking steps to restore the business to growth, including the introduction of lower-priced "more affordable" luxury goods, in an attempt to reinvigorate sales.


"We have listened to our customers and are introducing attractive new products in the key GBP500 to GBP800 price range. As a first step we introduced the new Tessie collection two weeks ago which is proving popular," said Executive Chairman Godfrey Davis in a statement.


Davis switched to an executive role following Guillon's departure until a successor is found. Mulberry provided no update on the search Thursday.


Davis warned that whilst the launch of lower-priced products will help the business in the longer term, there is no quick fix to bring sales and profits back to the levels they were a few years ago.


"While the business faces a challenging year, I am confident that we can build on Mulberry's solid foundations and unique brand positioning in the luxury market to restore growth in the medium term," said Davis.


Mulberry said that total retail sales in the first 10 weeks to June 7 were down 9% on the prior year, and down 15% on a like-for-like basis.


The company said it is expects a double-digit decline in wholesale sales for the current financial year.


Mulberry has also put the brakes on international expansion, by slowing the rate of its own store openings for the year ahead, so it can focus on controlling costs while its existing stores gain traction.


In the year just ended, Mulberry opened seven new directly operated stores in the US, Austria, Germany and Canada in its retail business, and its its wholesale business opened two partner stores - one in Europe, one in Asia - and closed two partner stores in Korea and the Middle East.


However this year, Mulberry said it plans to open just five new directly operated stores and fit out the Paris flagship store, which it hopes to open at the beginning of the next financial year.


Mulberry said it plans to spend GBP18.0 million in capital expenditure for the year to March 31, 2015, a majority of which will be on stores.


Mulberry shares were down 0.2% Thursday mid morning at 709.50 pence, having fallen to 676.50p at the open.







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Source: Alliance News


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