“Fierce competition” pushes Mulberry’s abroad

ANALYSIS_ “I am amazed how many discounts I see in the market now,” recognised Mulberry’s CEO Bruno Guillon in reference to the “fierce competition” that the high-end handbags maker is facing from mid-market brands cutting the price of their

handbags.

Is precisely this competition as well as a desire to position the Brand in a higher category which as pushed Mulberry beyond its domestic borders, increasing the company’s international bid. The English luxury brand Thursday reported a slight uptick in revenues, but a drop in profits for the first half of the year, partly due to its sustained injection of capital into overseas expansion.

Mulberry’s pretax profit fell to 7.2 million pounds during the six months ended September 30, behind the 10 million pounds achieved a year earlier. Again, its international efforts and seasonality costs were to blame for the drop in profits.

Based on the success the company has enjoyed in the UK with its Alexa and Willow handbags, Guillon aims to transform Mulberry from a “British success story into global success story”.

During the half-year, revenues from Mulberry’s international stores rose 29 percent, becoming the “first sign that the strategy is starting to work” as per the CEO’s commentary.

However, growth in UK retail sales slowed to 5 percent compared to 9 percent in the same period last year. Online sales also fell, losing 4 percent and acutely in contrast with the 15 percent growth noted by the UK retail industry in the period.

Guillon “not happy, but not disappointed” in the UK performance

"Our domestic UK market, where we have largely completed our network of stores, continues to be of prime importance to our business and we continue to seek ways to build market share. Our business in the rest of the world is relatively undeveloped and this is where we expect to achieve substantial growth in the future," said Chief Executive Officer Bruno Guillon in a statement.

In addition to the ever tougher competition, Mulberry has been forced to cope with a 16 percent rise in global leather prices during the period. This has led to the brand putting up its prices as the company explained earlier in September. “The economic environment is tough,” summarises Mulberry’s CEO.

The company’s profits were impacted by investment into a new factory in Somerset, which is due to be at full capacity by the middle of next year and will mean that half of Mulberry’s handbags are made in the UK, supporting its ‘Made in England’ marketing drive.

Now, Mulberry expects capital expenditure for the full year to reach 19 million pounds, depending on new store openings and other investments, which will continue to be funded from internally generated cash flows.

On the back of the news, Barclays analysts reaffirmed their equal weight rating on shares of Mulberry Group PLC (LON:MUL) in a report released on Thursday. Barclays currently has a 1,000 pence price objective on the stock. Shares at Mulberry have a one year low of 825 pence and a one year high of 1,459 pence.