- Strategy of reduced discounting pushed margins up to 71.7 per cent
- China stores now reopened after dragging down revenues in Q1
Luxury leather goods maker Mulberry (MUL) is feeling the benefit of higher full-price sales and a gain on the disposal of its Paris store lease, which led profits to quadruple to £21.3mn over the past year. Gross margins also jumped to 71.7 per cent in the year to 2 April, up from 63.6 per cent in the previous year, cementing the British heritage brand’s progress from loss-making to profitability over the past five years.
However, chief executive Thierry Andretta tempered the outlook with caution, saying he expected the business to grow “at a slower rate” from here on due to “severe disruption” caused by the geopolitical situation, inflationary pressures and Brexit-related challenges.
One of the factors leading to this is its expansion into the key luxury fashion markets of the Asia Pacific, one of the pillars of Mulberry’s recovery strategy since swinging to a £5mn loss in 2019. While four-fifths of sales are still in the UK, Asia Pacific revenues have been rising quickly, with retail sales in China rising by 59 per cent in the past year alone.
Since the start of the new financial year, Covid-related lockdowns have forced shutdowns at the majority of its stores in China and the Shanghai distribution centre. As a result, retail and digital sales dropped 1 per cent in the three months to June, although stronger wholesaling led to 5 per cent overall revenue growth.
Shares currently trade at around a 50 per cent discount to peers, said Shore Capital, adding that this does not reflect Mulberry’s direct-to-consumer strategy or emphasis on sustainability, both of which “could drive a premium rating”. More than half of Mulberry’s manufacturing is in the UK, giving it an advantage over sector peers that faced supply chain issues. However, the stock is rather illiquid, with the vast majority of shares owned by Singapore’s Ong family and Frasers Group (FRAS), which could complicate progress on re-rating. Hold.
| MULBERRY (MUL) | ||||
| ORD PRICE: | 315p | MARKET VALUE: | £ 189mn | |
| TOUCH: | 300-330p | 12-MONTH HIGH: | 389p | LOW: 190p |
| DIVIDEND YIELD: | 1.0% | PE RATIO: | 10 | |
| NET ASSET VALUE: | 63p | NET DEBT: | 114% | |
| Year to 2 Apr | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
| 2018 | 170 | 6.92 | 8.30 | 5.00 |
| 2019 | 166 | -5.01 | -8.20 | 5.00 |
| 2020 | 149 | -47.9 | -78.9 | nil |
| 2021 | 115 | 4.55 | 7.70 | nil |
| 2022 | 152 | 21.3 | 32.2 | 3.00 |
| % change | +33 | +368 | +318 | - |
| Ex-div: | 27 Oct | |||
| Payment: | 25 Nov |
Last IC View: Sell at 269p, 4 February 2020.
