By  on June 20, 2008

LONDON — Mulberry, the British accessories and ready-to-wear brand, said Thursday that net profits fell 13 percent to 3.4 million pounds, or $6.9 million, on a 13.5 percent increase in sales to 51.1 million pounds, or $102.7 million, in the year ended March 31.

In the previous year, profits were 3.9 million pounds, or $7.9 million, on sales of 45 million pounds, or $90.4 million. All dollar figures have been converted from the pound at average exchange rates for the period.

The company said the drop in net profits was a result of the costs associated with new store openings and increased marketing spending. Pretax profits for the year dropped 16 percent to 5.2 million pounds, or $10.3 million.

"These results reflect the continued investment in the brand," said Godfrey Davis, chairman and chief executive of Mulberry. "We continue to invest in the business both in the U.K. and internationally, using the retained profits and cash flow to invest in the opening of new shops and to significantly increase the expenditure on marketing. This strategy reduces profits in the short term...but is the key to developing future shareholder value."

During the past financial year, the brand increased its marketing spending by 2.1 million pounds, or $4.2 million, to 4.8 million pounds, or $9.4 million. Its retail space also increased, with eight Mulberry stores and six shop-in-shop units opening during the year.

Davis said accessories accounted for 90 percent of the brand's sales, with the label's Bayswater, Roxanne and Mabel leather handbags selling strongly, while a line of women's shoes will launch at Mulberry stores this fall. The brand also saw sales growth in its 42 stores and shops-in-shops in the U.K., with revenues rising 29 percent in those stores, and up 10 percent on a like-for-like basis.

The brand's sales growth continues — in the first 10 weeks of the current financial year, Mulberry said U.K. retail sales had risen 36 percent compared with the previous year. However, Davis sounded a cautious note on the outlook, in light of the tough economic climate. "Economic conditions are concerning and we remain cautious, particularly in light of cost inflation in the supply chain, which will put pressure on our margins," he said.In terms of future stores, the brand said it would open doors in Athens; Dubai; Jeddah, Saudi Arabia; Kuwait, and Copenhagen airport this year, along with stores in London and Leeds in the U.K.

Mulberry said the five U.S. stores it has opened with its associate company Mulberry USA LLC had incurred start-up losses, but described the brand's venture in the U.S. as a "long-term project." "We plan to build on the individual existing shops and profitability, and there is potential to open further shops, which will enable the U.S. business to reach critical mass," Davis said. To wit, the brand has plans to launch an e-commerce site in the U.S., which will trade in dollars, though no date has been set for the launch.

Davis said the stores the company has opened with its partner in Asia, Club 21, are developing "satisfactorily." In contrast, the company has terminated its arrangement with its partner in Japan to wholesale the collection in the region, saying that business there "has not met our requirements for growth and market penetration." Davis said the brand plans to "develop a new approach to this market in due course." Following the news, shares in Mulberry rose 9.09 percent to 162 pence, or $3.19 a share, on London's AIM market Thursday afternoon.

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