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Mulberry Group (MUL)

Share Price:
Down 292.50p
Change Today:
-4.00p
Market Cap:
175.64m

Mulberry to take 3m hit from House of Fraser collapse

20 Aug 18

LONDON (ShareCast) - (Sharecast News) - Mulberry, which operates 21 House of Fraser concessions, warned on Monday that the department store chain's collapse into administration will dent profits by around 3m, while "challenging" trading conditions mean full-year profit will be "materially" reduced.
The company, which employs 88 people across the UK as part of its global store and digital network, said that following a review of debtor balances, fixed assets and potential costs that may result from restructuring, it is now expecting to provide 3m for exceptional costs in the results for the six months to 30 September 2018.

It also said that since it reported in June, the UK market has continued to remain challenging and sales in House of Fraser stores have been particularly affected.

"If these sales trends in the UK continue into the key trading period of the second half of the financial year, the group's profit for the whole year will be materially reduced," it said.

Trading in the rest of the world continues to develop broadly in line with management's expectations and, in August, Mulberry completed the previously announced transaction with its distribution partner to create Mulberry Korea, which became a subsidiary from that date.

"The group is in a strong cash position and continues to follow its strategy to develop Mulberry into a global luxury brand. Over the past two years the group has enhanced the international network, particularly in Asia, and will continue to invest in the omni-channel experience and marketing across its international markets."

Earlier this month, Sports Direct bought House of Fraser out of administration for 90m.

Neil Wilson, chief market analyst at Markets.com, said: "This is really a sign of how it's not just the retailers that are affected by the decline on the high street, but also some of the key brands that depend on department store concessions and the visible presence they offer to consumers. We await to see whether the Sports Direct investment in HoF will act as a cushion for Mulberry.

"The tough UK market is a problem for Mulberry but its international sales growth is still positive. The task is to increasingly shift the sales mix away from the UK and towards the international market. At present international sales make up about a sixth of group sales but that should change and offer an outlet for this UK pressure."

Rebecca O'Keeffe, head of investment at Interactive Investor, pointed out that Mulberry has a history of profit warnings.

"Owning their shares is not for the fainthearted, but today's latest warning means their share price has now fallen more than 50% year to date. There is no doubt that House of Fraser has compounded their problems, but the underlying UK issues are deep-rooted as they struggle against lower footfall and fewer tourists. The company is trying to shift its focus internationally and that is helping to mitigate falls in UK demand, but the sustained problems in the UK can't be ignored."

Accendo Markets analyst Artjom Hatsaturjants said: "Exclusive luxury brands like Mulberry are having difficulties adapting to the new trading environment because they rely so heavily on the personal experience they offer to their customers. While the company does sell online, Mulberry retail strategy depends on the physical journey of shopping in upmarket retail concessions, which means that its fortunes can rise (and fall) with the likes of House of Fraser.

"No investor likes to take losses, but the 3m exceptional charge to Mulberry's finances could have been seen as a one-off. It's the combination of the charge and the currently unquantified profit warning for the rest of the year that is really putting the hurt to the company's share price."

Hatsaturjants said that until Mulberry can decouple its business model from reliance on department store concessions, or trading conditions markedly improve, its share price will maintain its downward momentum below the already miserable -58% performance it's seen since the beginning of the year.

At 1544 BST, the shares were down 26.5% to 418p.

Note 1: Prices and trades are provided by Digital Look Corporate Solutions and are delayed by at least 15 minutes.

 

Market Data

Currency UK Pounds
Price 292.50p
Change Today -4.00p
52 Week High 427.50p
52 Week Low 260.00p
Volume 4,675
Shares Issued 60.05m
Market Cap 175.64m

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