Mulberry warns of more pressure on profits as it looks to boost sales with cheaper bags

April 17, 2014
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Mulberry, the West fashion brand best known for its upmarket bags, today warned its profits will be hit hard as it introduces new lower-price products.

The firm, whose iconic bags often sell for upwards of £1,000, also said it was scaling back its new store opening programme as it looks to cut costs.

Today’s trading update is the Chilcompton, Somerset-headquartered group’s fourth profits warning in under two years and its second in three months.

Last month chief executive Bruno Guillon resigned with immediate effect – with industry insiders pointing to the group’s troubles during his two years at the helm.

Mulberry today said turnover for the year ended March 31 will be broadly in line with expectations with pre-tax profits on an underlying basis marginally below current expectations.

But next year’s profits are expected to take a hammering as it introduces what it called “more affordable new product”.

Non-executive chairman Godfrey Davis, who adopted the role of interim executive chairman immediately following Mr Guillon’s departure, today said a review of operations and strategy has been undertaken with the management team. 

“The primary objective is to reinvigorate sales by the introduction of more affordable new product,” said Mulberry.

While the firm remained committed to its strategy of international expansion, the rate its own store openings had been slowed to five for 2014/15 from eight for 2013/14 to control costs.  

The firm’s new Bridgwater factory, which opened last June, was fully operational with more than 300 employees, it said and attention was now being devoted to staff training and maximising production efficiency.

The statement said: “As a consequence of these factors, in particular the pricing strategy, there will be a material adverse impact on profit whilst brand momentum rebuilds.”

Mr Davis said: “Following the recent change in management, we are focussing on achieving sales growth through the reinforcement of our product offering at more affordable prices to meet the expectations of our loyal customers. 

“This will have short-term financial consequences but is necessary to ensure the future strength of the Mulberry brand.  The group remains profitable and cash generative, giving us the resources to invest for the future.”

Mulberry shares continued to fall today, slipping 25p, or 3.52%, to 684.5p in early trading.

 

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