Mulberry’s (MUL) shares plummeted 16 per cent after the luxury handbag maker issued a profit warning on the back of poor Christmas trading figures and a weak start to the year.
Management blames a reduction in tourist spending in London stores for dismal sales over the past 10 weeks and is now expecting like-for-like retail growth for the year to be roughly 6 per cent. In the previous year sales grew 36 per cent.
Wholesale sales are also expected to fall 15 per cent on last year to £58m from £69m because of lower-than expected in-season ordering, rather than the 10 per cent decline originally forecast. Wholesale has been particularly affected by tougher conditions in Asia - formerly a key growth market for luxury goods makers.
Group revenues are now expected to fall 2 per cent on consensus forecasts to £165m, which means pre-tax profit for the year will be 15 per cent down on expectations, falling to £26m from £36m the year before. Chief executive Bruno Guillon claims after three years of rapid growth, Mulberry is now experiencing a year of consolidation while it builds "the foundations for future growth".
A big problem for Mulberry is that the vast majority of retail sales are still generated in the economically challenged UK, so management is spending a lot money expanding internationally. Eight international stores were opened during the first half of the year, and 18 new stores have been opened since. It’s also planning to launch 15 to 20 new stores a year in key cities across the globe - pushing up costs further. Capital spending for the full year is expected to have risen to £20m.
Trading conditions in faster-growth Asian economies, where companies such as Mulberry invest for growth, are also easing - and in China in particular, it is becoming somewhat of a fashion faux pas to flash the cash. Whereas rich consumers were once happy to splash out on a £2,000 handbag, public anger about corruption, privilege and the disparity between rich and poor are making opulence unfashionable.
But Mulberry isn't the only luxury retailer to be feeling the pinch. Burberry issued a profit warning in September following due to weak sales. It has since bounced back, although a third-quarter trading update showed wholesale revenue fell 5 per cent, with weaker wholesale growth predicted for the second half as a whole.
