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Last updated: December 6, 2012 7:37 pm
The company said that the rising cost of raw materials, such as leather, had caused its gross margins to decline to 61.3 per cent in the six months to the end of September, from 66.2 per cent a year previously – contributing to a 36 per cent decline in pre-tax profits to £10m.
Wholesale revenues fell 4 per cent to £30m, as demand weakened in Asian markets. Mulberry also cut back on sales to mid-market department stores in an effort to boost the brand’s exclusivity. Nevertheless, it did record a 6 per cent rise in overall sales to £76.5m.
According to the company, margins will recover “partially” in the second half on the back of price rises and expected productivity gains. Bruno Guillon, chief executive, also said that, despite the profit drop, Mulberry would continue with its international store roll out as planned.
“The international retail rollout is on track with 17 to 20 new store openings expected for the full year,” he said. “During the period, we have rationalised certain wholesale accounts and refocused the outlet business, which has impacted financial performance in the short-term ... we firmly believe that this is in the long-term interests of transforming Mulberry into a global luxury brand.”
Retail revenue, from the company’s own stores, rose 13 per cent to £46.5m, boosted by four new openings during the period, while like-for-like sales rose 7 per cent. Diluted earnings per share fell from 19.2p in 2011 to 12.9p and the management has not recommended an interim dividend, in line with last year.
Weakening demand for its handbags and other items – especially in Asia – had led Mulberry to issue a profit warning last month, after which its share price fell by more than a fifth.
Mr Guillon, however, insisted full-year revenues and profits would be in line with market expectations.
Mulberry’s shares rose 5p, or 0.4 per cent, to £11.60 in mid-afternoon trading.
Mulberry says it wants to reposition its brand as the epitome of refined British elegance, and to reduce its wholesale exposure to non high-end boutiques. But will upmarket consumers buy it? By continuing its store openings abroad – Mulberry is aiming for up to 20 each year across Europe, the US and Asia – the company clearly believes demand for its signature leather goods can remain strong. However, with its shares trading on 23 times estimated 2013 earnings, compared with a sector average of 17 times, Mulberry will need to shift a lot more handbags to justify such a price tag.
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