Mulberry sheds 22% after missing profit estimatesThursday, 14 June 2012
Mulberry stock, which up to this very Thursday had increased in value by 35% this year, lost 22% in early trading after posting annual profits below of expectations by more than £1m and a 38% growth in revenues for the year to 31 March.
In words of retail analyst Nick Bubb, the start to the new financial year had overshadowed a "fantastic" 2011. "The outlook statement with today's results is surprisingly cautious."
Total sales grew by 38% to £168.5 million, below forecasts of £175 million. Retail sales grew by 36%, including like-for-like growth of 26%, while wholesale business increased by 43%.
Chairman Godfrey Davis said: “While the current economic conditions make the short term trading outlook more challenging in some markets, we remain confident about Mulberry’s long term future. We continue to focus on developing our business internationally, opening new stores and building the foundations for long term growth.”
The company, which generates 39% of its revenue outside the UK, fixed international revenue for the year at £65.2m (+61%). to Mulberry opened 14 stores during the year in the UK, Netherlands, the US and Asia. The UK, however, remains Mulberry's main market and saw like-for-like revenues, stripping out new store and concession openings, rise by 27%.
Jaana Jätyri, CEO of fashion trend forecaster Trendstop.com, stressed how "More than even Burberry, perhaps, Mulberry is a brand that has benefited from the growing demand in Asia. While the West has suffered, the East has boomed and Mulberry has been one of the main beneficiaries. In the emerging markets of China, India, Africa and Brazil, the middle classes are becoming wealthier and are gravitating towards affordable fashion status symbols.”
Gross margins increased by 80 basis points, compared to a 230 basis-point improvement in the first half. Philip Dorgan, a retail analyst at the City brokerage Panmure, described the results as a "slight miss" after profits came in £1m below expectations, but said extra costs such as a fully funded appearance at British fashion week had to be absorbed in 2012. Dorgan said Mulberry's future prospects were strong, particularly abroad.
"We believe that the next few years will see the Mulberry brand significantly extend its global reach," he said. "Its design team has developed an outstanding product that appeals to a broad range of consumers, built upon strong existing craftsmanship and quality connotations. We expect strong product development to accelerate this momentum."
"The appetite for Mulberry products shows no sign of abating and, to that end, management is doing its best to satisfy it, with increased production capacity now onstream and a decent opening programme, with 14 stores opening during the year, with perhaps 20 opening in the current year," Dorgan added. "Mulberry's growth potential is mostly untapped, although we are becoming increasingly confident that it will be achieved."
Supporting this view, Dorgan will keep his ‘hold' recommendation on the stock, stating that on a 2015 enterprise value to sales multiple of 3.3 times, the shares were "fairly valued".