Mulberry Plunges as Luxury-Goods Maker Sees Profit Setback

Mulberry Group Plc fell the most in more than a year in London after the luxury bag maker said profit will be “substantially below” estimates because of weak sales in the U.K. and order cancellations in South Korea.

The shares slid as much as 28 percent to 645 pence, the steepest drop since Oct. 23, 2012. The slide wiped about 150 million pounds ($249 million) off the company’s market value.

Business in the U.K. was affected by the decision of some competitors to discount before Christmas, according to Mulberry, which avoided premature price cuts as part of a longer-term strategy to move more upscale. The Korean market was “very challenging,” leading distributors to cancel orders amid a build-up of inventory, the company also said.

“The transition of Mulberry from a U.K. success story into a global brand does not appear to be going well,” Nick Bubb, an independent retail analyst in London, said in a note.

Mulberry was down 22 percent at 700 pence as of 11:20 a.m. in London. The stock has lost about two-thirds of its value since former Hermes International SCA director Bruno Guillon joined as chief executive officer in March 2012 with a plan to raise prices and expand the business globally.

In the U.K., new lower-priced competition is hurting sales as consumers watch their budgets, Guillon said today in a phone interview. The middle market -- companies selling products for 400 pounds and 700 pounds -- “is suffering a lot,” he said.

‘Extremely Competitive’

Still, the effect of discounting by competitors around Christmas won’t sway Mulberry from its strategy of positioning its brand for growth for the next 10 years, the CEO said.

“I don’t think this is particularly a problem of price,” Guillon said. With the majority of Mulberry’s products priced from 700 pounds to 1,000 pounds, “we are still extremely competitive compared to a lot of brands,” he said.

“What we need today is to bring excitement to the brand” -- something that Mulberry’s new brand director, who joined last year, is working on, he said.

The company expects to announce a new creative director in the next one or two months, Guillon said. The post has been vacant since Emma Hill quit last year.

Mulberry’s difficulties in Korea stem partly from weak brand recognition, while distributors also have a lot of inventory, the CEO said. The company is working on marketing initiatives to boost its profile as its Alexa bag is better known than the brand itself, he said.

Profit Estimates

Before today, analysts predicted pretax profit for the year through March of about 27 million pounds, according to the average of three estimates compiled by Bloomberg.

Helen Norris, an analyst at Barclays, said she now estimates earnings on that basis of 19 million pounds.

Sales growth in Mulberry’s own stores fell 7 percent in the eight weeks through Jan. 25.

Wholesale revenue in the year ending March 31 will fall about 10 percent, Mulberry said, twice the rate of its previous forecast.

Total sales will be “broadly in line” with last year.

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