Mulberry slips to a half-year loss but turnaround strategy raises hopes

The news that Mulberry Group fell into the red in H1 may not have been a surprise on Thursday but the UK luxury handbag maker announcing its turnaround strategy is beginning to pay off allowed for some festive cheer.

The company reported a £1.1m ($1.7m) pre-tax loss in the half to end-September, down from a £7.2m profit a year ago, and a net loss of £0.41m after a profit of £5.1m. The dip reflected a 17% decline in revenues to £64.7m as customers balked at its high prices.

Now for the good news: Mulberry said sales have begun to recover in the past two months with the nine weeks to November 29 seeing an 8% revenue uptick, a 23% surge internationally and an 18% increase online.

But for H1, Mulberry said retail revenue fell 9% to £45.1m and wholesale plunged 31% to £19.6m.

Same-store retail sales fell worse than the headline 9% drop. They were down 13% and that fall could not be offset by the increase in international business.

Retail sales in the core UK business were down 16% to £31m with full price stores affected by a decline in footfall, particularly tourist shoppers (down 12% to £20.9m) and outlet stores “continuing to normalise from unusually high levels in the prior year. Sales there were down 23% to £10.1m.

International retail sales (excluding online) were up 20% to £7.5m, reflecting the impact of new stores, and online sales were up 1% to £6.6m, representing 10% of group sales from 8% a year ago.

The wholesale decline of 31% to £19.6m reflected “a combination of inventory reduction and conservative ordering by our Asian and European partners,” Mulberry said.

Gross margin dropped to 59.9% as expected from 63% last year, reflecting in part the impact of the new factory as its production efficiency increases.

“While the progressive improvement in retail and online sales trends is encouraging, the next few weeks trading through Christmas and into January are very important to the full year result,” the company said.

Mulberry must be hoping this is a new beginning for the brand, especially ahead of the arrival of Celine’s Johnny Coca as design chief next summer. It has suffered a bruising period in the last year as designer head Emma Hill left and customers decided the pricing strategy of its former management CEO, ex-Hermès executive Bruno Guillon, was a step too far.

Its flagship retail strategy that was meant to replace a reliance on wholesale also failed to ignite sales. Under returning CEO Godfrey Davis, Mulberry has widened its lower-priced offer with the Tessie range priced from £495-£795, while retaining its luxury profile.

Announcing the latest results, Davis said: “We have worked hard to re-engage with our customers and our tongue in cheek Christmas video #WinChristmas has been viewed well over one million times.

“After a difficult couple of years, the steps that we have taken to return Mulberry to growth are beginning to bear fruit and looking further forward, we expect to gain further momentum from the appointment of Johnny Coca.”

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