Mulberry’s Guillon Sees Profit Revival Without Creative Head
Mulberry Group Plc (MUL) Chief Executive Officer Bruno Guillon has some catching up to do.
After cutting forecasts twice in his first year at the helm, the 47-year-old CEO is pledging to return the British luxury-goods maker to growth in the next 12 months, even without the help of Mulberry’s celebrated creative director.
Guillon agrees with Barclays that pretax profit will rise 12 percent to 29 million pounds ($45 million) in fiscal 2014, he said in an interview yesterday. While the Somerset, England-based company’s dependence on Europe for 80 percent of revenue is “dangerous” given the region’s economic struggles, new stores in Asia and the U.S. mean the worst should be behind the maker of 2,500-pound ostrich leather bags, Guillon said.
“We need to be cautious, but we are still confident in the future because we continue to take the steps that will give us the global expansion that we are looking for,” the CEO said by phone after Mulberry posted a 28 percent drop in 2013 profit. “It’s a necessity for us to go and make sure we can be successful in the U.S. and Asia” where the company will open most of the 15 to 20 new stores it plans this year, he said.
Mulberry follows luxury-goods makers including Milan-based Prada SpA (1913) in increasing prices and expanding outside of Europe as domestic demand weakens in the region. Prada, which raised prices by less than 10 percent in three months through April, plans to open as many as 80 stores in 2013, including in Asia.
“Our belief that Mulberry can move from a domestic U.K. brand to a global brand remains high, providing significant long-term growth potential,” said Barclays analyst Helen Norris, who has an equal-weight recommendation on the shares.
While Guillon cooled fiscal 2013 earnings expectations in March, partly because of reduced tourist spending, he couldn’t prepare investors for this week’s announcement that creative director Emma Hill wants to quit. The news wiped 87 pence, or 8.2 percent, off Mulberry’s share price.
Hill, 42, is credited with driving Mulberry’s growth over the past six years with bags such as the Alexa, costing 2,500 pounds in deer brown hair calf, and Del Rey, 1,100 pounds in textured lizard print. She disagreed with Guillon’s decision to move the brand upscale, according to a person familiar with the matter, who asked not to be named because the matter is private.
That’s surprising because Hill helped set the strategy, Guillon said yesterday.
“When I came on board there were already a lot of ideas on the table,” said the CEO, who joined in March 2012 from Paris-based Hermes International SCA. (RMS) “It’s not uncommon that a creative director is leaving after nearly six years in the same company to take new challenges.”
Hill, who according to Women’s Wear Daily is among candidates to succeed Reed Krakoff as creative director at U.S. bagmaker Coach Inc. (COH), doesn’t have another job lined up, said the person familiar with her plans. Mulberry declined to make Hill available for an interview.
The company is looking both internally and externally for her replacement, Guillon said. Mulberry’s 20-person accessories and ready-to-wear designer team can cope without her, he said.
“While there is likely to be some short-term disruption, the group has a strong design team,” said Barclays’ Norris.
Mulberry yesterday reported a drop in full-year pretax profit to 26 million pounds on revenue that fell 2 percent to 165.1 million pounds. It added 17 international stores in the year, bringing the total to 115, and invested in a second U.K. factory that opened this month.
While raising prices 12 percent in November opened a new price point from 1,000 pounds to 1,500 pounds, more than 60 percent of Mulberry’s bags still cost clients less than 1,000 pounds, Guillon said. The increase, which the CEO attributed to higher charges for top-quality leather, didn’t affect consumer demand in November and December, he said. A 1,500-pound version of the company’s best-known Bayswater bag made with more expensive leather sold out in two weeks, he said.
“There is a potential for us to go bit a higher,” he said. “But at the same time we are reinforcing the base and core business. There is absolutely no revolution here.”
Retail revenue climbed 9 percent in the 10 weeks through June 8, rising 6 percent on a like-for-like basis. Mulberry expects “modest” growth in wholesale sales for the full year, it said. Responses to the fall-winter 2013 and spring-summer 2014 collections have been “good,” Guillon said.
“It’s not going to be easy in the U.K.,” he said. Still, “we are confident.”