Mulberry in House of Fraser-linked profit warning as Harrods MD says "give Ashley a chance"
Aug 20, 2018
The fallout surrounding the £90 million acquisition of House of Fraser by Mike Ashley's Sports Direct is accelerating, with luxury brand Mulberry on Monday issuing a statement around the impact that the £2.4 million it is owed and the interrupted trading at HoF have had.
Mulberry operates 21 House of Fraser concessions, employing 88 people across the UK. Following a review of “debtor balances, fixed assets and potential costs that may result from restructuring, the group is expecting to provide £3 million for exceptional costs” in its results for the six months to 30 September.
Its shares fell as much as 30% Monday morning as it added that since it last 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 year [to March 31 2019] will be materially reduced.”
Fortunately, trading in the rest of the world “continues to develop broadly in line with management's expectations” for Mulberry, but its House of Fraser-linked issues highlight just how big an effect the HoF failure and buyout have had.
Late last week it was revealed that the company owes its unsecured creditors £484 million with major fashion brands high on the list of those owed large amounts. That amount was included in the almost-£1 billion total debt that its administrators revealed HoF was carrying.
Ralph lauren’s Polo UK is owed almost £10 million, while Kurt Geiger, Tommy Hilfiger, Phase Eight, Mint Velvet, AllSaints, Giorgio Armani, Hobbs, Lacoste, Warehouse, Hallet Retail, Hugo Boss and Diesel are all owed between £1.1 million and £4.9 million. Versace, Gucci and Prada are also on the creditor list.
But these amounts are small compared to the more-than-£30 million bill that has caused a dispute with third-party distributor XPO Logistics. This led to the HoF warehouse being closed and its website being taken offline.
It’s all adding up to a nightmare for Ashley (whose company owned an 11% stake in HoF prior to its administration filing), for HoF’s suppliers and staff. But in a tidal wave of negativity, one industry luminary - the man running Harrods - has spoken up and said Ashley should be given a chance to make his new acquisition work.
Harrods was part of House of Fraser many years ago and its current managing director, the highly respected Michael Ward, said at the weekend that he wasn't surprised about the chain’s failure given the declining high street, but “we should all give [Ashley] support and enthusiasm for trying to shake things up a bit”.
Ashley wants to keep most of HoF’s stores open and to make the most of the space in them by transplanting large branches of Sports Direct or upscale chain Flannels into the stores. In fact, the HoF website currently redirects people to the Flannels webstore to find luxury brands.
On Ashley’s claim that he wants HoF to be “the Harrods of the high Street,” Ward told The Telegraph: “I think what Mike meant is that he wants to take House of Fraser more upmarket and become more experiential. Having a Harrods in every British town wouldn’t work, it would fail miserably. Harrods works because we are in one location – London, the capital city.
“Mike knows he won’t be successful putting Prada into every House of Fraser shop. But he will be successful in making the chain more fun.”
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