Fashion firm Mulberry gave Britain’s luxury goods sector a fright on Tuesday as it warned that a slowdown in its international markets would squeeze profits this year.
The company said lower-than-expected international sales and a 4 per cent decline in its wholesale shipments would mean profits for the year to March will be below the previous 12 months, causing its shares to slump by almost a quarter.
Analysts had previously pencilled in a generous profits rise from the firm, although it had already warned over trading conditions in June when it revealed bumper earnings but said that like-for-like sales had dipped in the spring.
Richard Cathcart, a retail analyst at Espirito Santo Investment Bank, said the warning meant a downgrade of at least 16 per cent to the consensus pre-tax profit forecast of £43 million this year, as the figure is now expected to be below last year’s £36m total.
But he said it was Mulberry’s description of a more challenging environment in Asia that is likely to be the most concerning both for luxury brands and mainstream retailers who trade with the continent.
Luxury retailers had been in strong demand until the summer because their popularity in emerging markets such as China was seen as giving them an outlet into fast growth areas untroubled by Europe’s economic woes. However, they have lost their shine recently as the slowdown spread across the globe.
Larger rival Burberry recently rattled the City when it highlighted signs of a slowdown in demand in China, although it offered a more reassuring update earlier this month. The blue-chip company’s shares were also lower yesterday.
Mulberry has been sold off much more aggressively – its shares peaked at 2,500p in early summer but are now priced at little more than a third of that level. Last night they closed down 23.8 per cent at 1,006p.
Rik Thakrar, senior dealer at Spread Co, said: “It seems that many in the market view Mulberry as a poor man’s Burberry, a view certainly borne out by the almost feverish short-selling noted by our dealers in the stock [yesterday] morning.”
Mulberry chief executive Bruno Guillon said the short-term slowing of sales growth reflected a drive to improve the quality of its wholesale distribution network.
But he said the moves were in the long-term interests of building Mulberry into a global luxury brand, which is pressing ahead with plans to open up to 20 overseas stores this financial year.