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Mulberry Shares Slide on Slower Growth

The firm’s net profits surged 48 percent during the fiscal year and revenues climbed 38.6 percent.

LONDON — Mulberry Group plc’s share price sank by almost 23 percent to 15.60 pounds, or $24.26, at the close of trading on the London Stock Exchange Thursday after the company reported results for the fiscal year to March 31.

While the firm’s net profits surged 48 percent in the year to 25.3 million pounds, or $40.4 million, and revenues climbed 38.6 percent to 168.5 million pounds, or $268.9 million, investors reacted adversely to news that sales growth had slowed in the first 10 weeks of the current year.

In the 10 weeks to June 9, Mulberry said retail sales had risen 12 percent compared with the same period last year and that its wholesale fall orders were up 11 percent. “April for most of our markets has been a slightly odd month [at retail], whereas the last six weeks have been much more business as normal,” said Godfrey Davis, Mulberry’s chairman.

Davis described the fall in Mulberry’s share price as “a fairly snap reaction to the 10- week figures” among investors. He also noted that since the company plans to open up to 20 international stores over the current fiscal year, the year will “bear quite a lot of the costs of the stores.”

“As a result, we have said, ‘Let’s have sensible expectations for this year,’” said Davis. “I think [investors] are reacting to that.”

Davis stated Thursday that the “current economic conditions make the short-term trading outlook more challenging in some markets,” but added that the firm remains “confident about Mulberry’s long-term future.”

“We continue to focus on developing our business internationally, opening new stores and building the foundations for long-term growth,” he stated.

Mulberry’s share price fall comes after the stock reached a high in early May, when it traded for 24.72 pounds, or $38.50 per share.

Davis partly attributed the rise in profits and sales during the year to international demand for the British luxury goods label. International sales now account for 39 percent of Mulberry’s revenues and increased 61 percent during the year to 65.2 million pounds, or $104.1 million. All dollar figures have been calculated at average exchange rates for the period.

Davis said international sales were helped by the brand’s “sustained investment” in those markets. “This investment in people, product design, marketing and new store openings is the driving force behind the growing international success of our business, which continues to become less dependent upon customers in the U.K. or any other single market,” said Davis.

In light of that strategy, the company is set to open stores in Cologne and Berlin in Germany and San Francisco and Washington, D.C., in the U.S., along with a further four stores in Korea and stores in Singapore, Japan and Shanghai, with between 15 and 20 stores set to open during the current financial year.

Davis said in Europe Mulberry’s business grew by 52 percent, in Asia by 68 percent, in North America 62 percent and in the rest of the world by 78 percent. The U.K. grew by 28 percent, reflecting Mulberry’s existing “significant” share of the market in its home country, Davis said. “The international rollout is really what we’re about,” said Davis, noting that the U.K. only represents 5 percent of the worldwide luxury market. “We expect our market share to grow in all of the rest of the world,” he said.

Retail sales during the period grew 36 percent to 99.7 million pounds, or $159.1 million, while wholesale sales increased 43 percent to 68.8 million pounds, or $109.8 million.

The firm’s wholesale business in the Asia-Pacific region rose by 70 percent to 25.1 million pounds, or $40.1 million, during the period, and the region now accounts for 36 percent of Mulberry’s wholesale sales, making the area its largest geographical wholesale market.

In terms of categories, leather goods continue to comprise the lion’s share of Mulberry’s sales, accounting for 77 percent of revenues during the year to March, while women’s apparel and women’s footwear businesses were the firm’s fastest-growing categories.

“The challenge for the next few years is to build upon the solid foundations that have been laid, seize the international opportunity in a way that maintains the careful positioning of the brand within the luxury market, whilst continuing to make the enduring quality of our products central to everything we do,” said Bruno Guillon, who joined Mulberry as chief executive officer in March.

Guillon noted that Mulberry has increased the capacity at its Somerset, U.K., factory by 30 percent and has invested 7.5 million pounds, or $12 million, to open a second factory in the region by December 2013, which will double its U.K. manufacturing capacity and create 300 jobs. Davis said as Mulberry’s business grows internationally, “the customer is keen on buying a made in England product,” noting that the company aims to increase the proportion of products it manufactures in the U.K. from 20 percent to “between 30 and 40 percent.”