Why Shares In Mulberry Group plc Plummeted

It’s a whole heap of bad news for Mulberry Group plc (LON: MUL).

Mark Stones

Mark Stones (TMFMumbojumbones) joined The Motley Fool in 2014 and initially worked as a writer for Fool.co.uk, before joining the Fool’s analyst programme. Mark earned a BA in English from Loughborough University. Although he spends more time reading annual reports than Russian literature these days, he still appreciates a novelist’s antipathy toward the accepted view, which is a useful attitude when trying to sniff out hidden gems on the stock market. His approach to investing has been largely influenced by the principles of Warren Buffett and Peter Lynch. He also takes a special interest in the work of healthcare companies. Outside of investing, Mark plays guitar, enjoys good writing and has a guilty passion for combat sports.

Published 29 January, 2014 9:13 am GMT

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Although we don’t believe in timing the market or panicking over every stock fluctuation, understanding how a business is performing, competing and changing is vital to sensible investment.

What: Woe is Mulberry (LSE: MUL), as shares plunged by more than 24% in early trade this morning, following a trading update that revealed annual pre-tax profit won’t meet expectations.

So what: In total, the luxury leather goods maker reported a 3% year-on-year decline in total retail sales during the four months ended 25 January. Mulberry warned its annual profit would be substantially below market forecasts after a particularly arduous Christmas period where heavy discounting across the market hit sales.

Following order cancellations in South Korea it expects wholesale sales to be down 10% on the previous year. The reduction in wholesale sales is expected to offset growth in the retail sector.

Similarly, the costs associated with the recent store opening programme contributed to the dent in profits.

Now what: This is the second year in a row where Mulberry’s share price has been rocked by a profit warning. Slight consolation comes from retail growth in international markets.

Bruno Guillon, the chief executive, had the following to say:

“Due to tough trading conditions over the Christmas period which saw significant discounting across the market, Mulberry has experienced lower than expected UK retail sales which, together with wholesale order cancellations from Korea, will adversely impact our profit this year. Despite this, the company continues to be cash generative and to invest in the ongoing process of transforming Mulberry from a domestic to a global luxury brand, the progress of which is demonstrated by the continued growth in international retail sales.”