Dec 8, 2016
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Mulberry makes loss as it boosts investment, sets up new China company

Dec 8, 2016

Mulberry posted a pre-tax loss of £0.5m in the first half but it wasn’t a return to the bad old days. The company’s recovery curve still seems to be heading upwards under new creative chief Johnny Coca and as it invests extra money in product, as well as a new company to boost sales in Greater China.

The loss in the six months to September 30 may have compared badly to a tiny pre-tax profit in the previous year’s first half, but there was plenty of good news too. Revenues leapt 10% to £74.5m with comparable sales up 7%. And digital sales surged 32%, to account for 14% of group sales compared with 12% a year ago. International retail sales including digital were up only 2% to £10.5m but rose 10% on a comparable basis.

Mulberry has launched a raft of new or revamped bags in the last six months - Mulberry

During the period, the Covent Garden store was relocated to a larger, better location, a House of Fraser digital concession launched, the Sydney store was acquired from franchise partner Club 21, and the Madison Avenue store in New York was closed. And in Continental Europe, the group’s digital offer was extended with full omnichannel services in-store.

The first collection under the creative direction of Coca was introduced during the period with nine new bags launched, including an evolution of the bestselling Bayswater design. Mulberry also said small leathergoods have seen good growth after major redevelopment and the new products introduced by Coca have created “additional brand interest”. Additional bag families and sizes are planned for coming seasons.  

Over the longer term, the objective is to reinforce Mulberry as a lifestyle brand by strengthening complementary categories, in particular shoes and ready-to-wear.  Style "stories" across categories are being introduced with co-ordinated merchandising and marketing initiatives.  

The style and price point of these categories have been aligned with bags, in order to make them attractive to the group's core customers, as well as appealing to a new audience.

So with all that activity, the pre-tax loss could be easily explained as extra investment of around £1m, plus and additional foreign exchange costs on overseas subsidiaries of around £0.4m ate into profits.


However, despite the investment and new launches, sales growth in the 10 weeks since the first half ended has slowed. But while the company isn’t currently enjoying a similar upwards trajectory to that of H1, sales have at least risen 4%, with comps up 3% in H2-to-date.

Why the slowdown? The company said UK demand from British shoppers has softened, but tourist spending has helped boost its takings in London. “The UK and global outlook has become more uncertain since we last reported, however we are in a good position,” said CEO Thierry Andretta.

He added: "We have strengthened our balance sheet with tight inventory management leading to strong cash generation.”

Mulberry is investing for the future - Mulberry

Andretta also said a new business in North Asia “will progress our strategy of developing our retail and omnichannel model in key luxury markets.”

That new business saw the firm signing a deal with Challice for a new company to run Mulberry in China, Hong Kong and Taiwan. Challice, which owns 56% of Mulberry’s share capital, is under the same ultimate shareholder control as Mulberry's existing distributor in the region, Club 21.

The new group will own 60% of the share capital of the new company, Mulberry (Asia) Limited and aims to boost regional and global sales. The initial platform will consist of four stores, wholesale and omnichannel, including the Chinese language mulberry.com site

Mulberry Asia is expected to be lossmaking during its first two years before moving into profit but the losses will be partly offset as a result of the group's manufacturing profit generated on the sale of goods to the new business

Mulberry expects to directly invest £3m in additional regional marketing support over the next two years.

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