Mulberry cautious ahead of first-half results

The luxury handbag maker will announce its first-half profits on Thursday 4 December, and traders are treading are lightly as the company has already warned on first-half profits. 

Mulberry logo
Source: Bloomberg

Shares in Mulberry have recouped losses from the profit warning that was issued in October. This was the third profit warning of the year, so dealers are reasonably confident of a recovery. The autumn update reported that even though it was anticipating a ‘challenging year’ it turned out to be more difficult than originally thought. Profit warnings are becoming all too common place for the fashion house; the previous two years saw a string on guidances being lowered.

The UK-based retailer ran into trouble in 2012 when the roaring Asian markets began to cool off and cost began to tick higher. Bruno Guillon, who was the CEO at the time, pressed ahead with opening new stores thinking it was a short-term blip in the demand. The brand prided itself on being notoriously exclusive but after the wholesale orders from the Far East started to fall, a new strategy was required. Johnny Coca was this week appointed as the new creative director, replacing Emma Hill who left last year. Former CEO, Godfrey Davis, returned to the top this year and we are finally starting to see some stability at the company.

Mr Davis has the task of making the products ‘more affordable’ while maintaining the integrity of the luxury brand — some of the cheaper bags will be in the £500-£695 region. The aim is to capture a larger market share in western economics like the US, UK and continental Europe, to compensate for the sliding sales in emerging markets. It will not be an easy task as consumers in the West have become more cost-conscious and China’s best days are behind it.

Equity analysts are leaning to the bearish side when it comes to Mulberry. Out of the five recommendations, four are holds and one is a sell, with the average target price of £6.75 which is 13% below the current price. Within the high-end goods market, analysts hold a very bearish outlook for Mulberry when compared with Burberry and LVMH-Moet Hennessy.

A figure of 35% for ratings on Burberry are buys, and the average target price is 2% above the current price. Equity analysts are bullish on LVMH, with 56% of the recommendations being buys. However, the average target price is only 4% higher than the current price so outlook isn’t as glowing as initially thought. When looking at the sector as a whole, investment banks are cautious, and it is clear there is no desire to see much more upside to the industry.

The company will report its full-year figures in May 2015. The consensus is for an adjusted net income of £7.45 million and revenue of £154 million. This forecast represents a 36% and 5.78% drop on last year’s figures.

Since the profit warning in October, the share price has found it difficult to breach £8. If the first-half figures fail to impress traders, the stock could target the 200-day moving average of £7.30. However, if the stock closes below this level on a daily basis the next level of support is likely to be found at £7.

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