- Increased costs drive loss
- Gross margin up
After a range of bullish updates from luxury stocks over recent months, there are now signs that certain parts of the sector are beginning to feel the heat from the macro environment and pressures on consumer spending. Mulberry (MUL) shares fell by 6 per cent after the British luxury brand revealed a 1 per cent drop in sales and a £3.75mn pre-tax loss in its half-year results to 1 October.
Total retail sales fell by 7 per cent, with a 32 per cent uplift in franchise and wholesale revenues preventing an even greater drop in the top-line overall. UK retail sales plummeted by 10 per cent to £34mn, which management attributed to the impact of “the broader economic environment”. China retail sales were up by 6 per cent, despite continuing pandemic restrictions, while international retail sales were flat.
There was better news on gross margin, which was up by 200 basis points to 71 per cent. Management said this was due to the business’ focus on full-price sales and volume efficiencies. But higher operating expenses, up 42 per cent to £49mn, dragged the company down to a loss. This included higher spending on marketing and technology.
With Mulberry’s reliance on the UK market (two-thirds of sales in the half were recorded here) it looks more exposed than peers to the impact of the government’s reversal of a tax-free shopping policy for tourists. Burberry (BRBY), which takes most of its sales in Asia, warned recently that big-spending foreigners are heading to the continent to spend their money, hitting performance in London. We stick with our hold recommendation on Mulberry for now, at 253p.
Last IC view: Hold, 315p, 29 Jun 2022
