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Mulberry Issues Another Profit Warning

The British brand re-thinks its strategy, lowers its prices, and downshifts the pace of new store openings in the current year.

LONDON — Mulberry Group plc warned pre-tax profits for the year ended March 31 would be slightly below expectations, as the company re-thinks its strategy, lowers its prices, and downshifts the pace of new store openings in the current year.

This story first appeared in the April 18, 2014 issue of WWD.  Subscribe Today.

Mulberry, which over the past 10 months has seen the departure of its chief executive officer Bruno Guillon and its creative director Emma Hill, said turnover for the year would be “broadly in line with expectations.”

It added that profit before tax on an underlying basis is expected to be “marginally below” current expectations, at approximately 14 million pounds, or $23 million.
Figures are calculated at average exchange rates for the past 12 months.

The dip in profit comes in part from a decision to write down the net carrying value of two U.S. stores, creating a non-cash charge of 2.7 million pounds, or $4.4 million.

According to Godfrey Davis, interim executive chairman, one of Mulberry’s smaller U.S. stores has been underperforming, and the plan is to re-locate the New York flagship store when the lease runs out. The company said the costs of the recent management change would also dent pre-tax profits in the 2013-14 year.

Meanwhile, in the current fiscal year, the company is looking to reinvigorate sales with more “affordable” new products. Over the past 18 months, Mulberry had driven away many of its core British customers by raising prices to compete with the big luxury players.

“Following the recent change in management, we are focusing on achieving sales growth through the reinforcement of our product offering at more affordable prices to meet the expectations of our loyal customers,” said Davis. “This will have short term financial consequences, but is necessary to ensure the future strength of the Mulberry brand. The group remains profitable and cash generative, giving us the resources to invest for the future.”

Mulberry said the new pricing strategy in particular would have “a material adverse impact” on profit while brand momentum rebuilds.

Davis told WWD that new product will be landing in June with price tags that are 15 to 20 percent lower than previous seasons. “We want to give our loyal British customer a fair, attractive deal, a collection they can really sink their teeth into,” he said.

The statement added that Mulberry remains committed to its strategy of international expansion, but the rate of store openings would slow in the current year. Five stores will open in 2014-15, compared with eight in the previous year, in a bid to control costs and allow “existing stores achieve greater traction,” the company said.

It has not been an easy 24 months for Mulberry. Guillon’s tenure was marred by multiple profit warnings, the most recent of which was in January. Hill resigned last summer, and Davis said Thursday that he is currently “very focused” on finding a new creative director.

Mulberry shares, which are listed on the London Stock Exchange, slumped by about 65 percent on an adjusted basis during Guillon’s two-year tenure. Following today’s announcement, Mulberry shares were down nearly 3 percent to 6.88 pounds, or $11.56.

In January, Mulberry said sales for the year ending March 31 would likely be flat against last year’s 165 million pounds, or $273.6 million.

Mulberry is majority owned by Challice Ltd., a company controlled by Ong Beng Seng and Christina Ong. They own 56.2 percent, while the rest is listed on the AIM division of the LSE.