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Mulberry profits warning signals luxury goods market slump
ICONIC British designer Mulberry shocked the market this morning (October 23) by issuing a profits warning as signs were afoot that the luxury goods bubble has burst.
Shares for the designer brand, which is most famous for its handbags, peaked at 2500p in the summer but are now just a third of that level after the company followed Burberry in warning of slowing demand from emerging markets in Asia.
Mulberry, which recently announced plans to open a second factory in Somerset to keep up with demand, said profits for the year to March will be below expectations and the previous year.
It blamed lower-than-expected international sales and a four per cent decline in Mulberry's wholesale shipments, taking the shine off a 13 per cent hike in retail sales to £46.5m, including a ten per cent rise in UK sales.
The warning, which caused its shares to fall by more than a quarter, is a blow to chief executive Bruno Guillon, who joined the company from luxury brand Hermes in March.
The company's best known product of recent times has been the Alexa bag - inspired by television presenter and style icon Alexa Chung - while its Del Rey bag named after by American singer-songwriter Lana Del Rey.
It upgraded profit forecasts on several occasions over the last year and in June announced a 54 per cent jump in full-year profits to £36m.
But Burberry recently rattled the City with signs of a slowdown in demand in China, although it offered a more reassuring update earlier this month. The blue-chip company's shares were 4 per cent lower today.
Mr Guillon said the short-term slowing of sales growth reflected a drive to improve the quality of its wholesale distribution network.
But he said the moves were in the long-term interests of building Mulberry into a global luxury brand.
Philip Dorgan, retail analyst at Panmure Gordon stockbrokers, said today's profit warning was "severe", but added that it was likely the international slowdown was "just a blip".
Sales in its international arm rose by a less-than-expected 41 per cent in the first half of the year, although it is pressing ahead with plans to open up to 20 overseas stores this financial year.
Mulberry said its core business continues to perform well in a more challenging external environment, with retail sales up seven per cent on a like-for-like basis.
It is set to start building the second factory in Somerset within the next few weeks, which will double its UK capacity.