Mulberry Momentum Hit by Asia Sales Slowdown

Shares of the British firm fell more than 25 percent on Tuesday following news that the slowdown would dent year-end sales and profits.

LONDON — The luxury virus is catching: Shares in Mulberry Group plc fell more than 25 percent on Tuesday following news that a slowdown in demand among the brand’s Asian wholesale clients would dent year-end sales and profits.

This story first appeared in the October 24, 2012 issue of WWD.  Subscribe Today.

“Primarily due to lower wholesale revenue, Mulberry now expects group revenue growth for the year to 31 March, 2013 to be below market expectations,” said Bruno Guillon, the company’s new chief executive officer, in an unscheduled trading update that rocked the market Tuesday morning.


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“As a result of this, combined with the previously highlighted investment being made in international retail expansion, we now expect full-year profits to be below last year,” Guillon added. “However, the business continues to be strongly profitable and generate significant cash to fund our future expansion.”

Mulberry’s stock price declined 25.1 percent to 9.89 pounds, or $15.82. It recovered slightly to close down 23.8 percent at 10.06 pounds, or $16.10.

In the six months to Sept. 30, Mulberry’s revenue climbed 6 percent to 76.5 million pounds, or $122.4 million, with wholesale shipments to third parties down 4 percent to 30 million pounds, or $48 million.


The company blamed the decline on more cautious Asian franchise partners, tough half-year comparisons and a strategic slimming down of the wholesale network aimed at weeding out inappropriate accounts. Mulberry said that international retail sales, currently a small part of the business, were up 41 percent, but still did not meet expectations for the first half of the year.

“We see it as a pause for breath — Mulberry has had a terrific few years, and was never going to grow on a straight line,” said Roger Mather, the company’s financial director, in an interview. “A lot of it is self-inflicted, as we are cleaning up the wholesale channel in places like Germany, Belgium and Italy. We want to be sitting next to other luxury brands.”

In the year ended March 31, net profits surged 48 percent to 25.3 million pounds, or $40.4 million, while revenues climbed 38.6 percent to 168.5 million pounds, or $268.9 million.

Asked about the softening in demand in Asia, Mather said it was happening across the region. “Our Korean franchisee runs 25 shops and will be opening more, but the like-for-like sales are a bit weaker, and Club 21 [which operates Mulberry stores in other Asian markets] has also seen a slight slowdown.”

Mather said Asian clients were making “conservative orders,” and were careful about building up excess stock. However, the slowdown in Asia hasn’t stopped Mulberry from forging ahead with store openings in the region. This week, the brand will open a 3,000-square-foot Singapore flagship, while next year two more stores will open Shanghai — taking the total to three — while one will open in Beijing. Overall, nearly 20 Mulberry stores will have opened worldwide in the full year to March 31, 2013.

The financial director added that Mulberry was “optimistic” going forward, and that in pruning its list of wholesale stockists and ceasing the production of merchandise made exclusively for outlet stores — another decision that has dented sales growth — the company was taking “a half-step backwards” in order to move forwards.

Mulberry is the latest luxury firm to fall victim to the slowdown story in luxury. Last month, Burberry issued a warning to the markets, saying that like-for-like retail sales had been flat, although the brand reported one percent growth in its most recent Q2 report. Earlier this month, during a conference call, Burberry principals said China and the U.K. had been big contributors to the slowdown in the period.

On Thursday, PPR is set to release its Q3 figures. In a note this week, Thomas Chauvet at Citi said the bank is expecting a slowdown in growth to 5 percent compared with the corresponding quarter last year, with the luxury division up 11 percent compared with last year’s 25 percent.

“We expect PPR’s luxury division to continue to enjoy solid double-digit growth. This will be a respectable outcome given…tougher comparatives of percent, continued softness in China, early signs of normalization in the U.S. and weak demand from local European clientele (albeit offset by inbound tourist demand),” Chauvet wrote.

“If achieved, this performance would be a stand-out in a sector likely to deliver mid-single-digit growth in 3Q.” At recent investor meetings, PPR management highlighted that although the Gucci brand is entering a new phase of “normalized” growth, the other luxury brands are likely to continue to perform well, YSL and Bottega Veneta in particular.