Economic climate impacts Mulberry but growth attractions remain for investors

As Mulberry reported half year results, Helal Miah investment research analyst at The Share Centre explains what they mean for investors.

"The English luxury goods maker reported a 6% increase in sales to £76.5m, compared to the same period last year. The retail side of the business saw a 13% growth and more than made up for the shortfall in the wholesale business, which saw sales fall 4%, due to the rationalisation of the distribution network, much of which was already anticipated.

"Back in October Mulberry announced that the global economic environment is likely to dampen the full year performance so these relatively weaker numbers were largely expected by investors. Gross margins fell to 61.3% following initiatives to improve on product quality and operation costs rose by £4.6m, due to the increased number of directly operated international stores. As a result, profits before tax fell 36% to £10m compared to £15.6m in the same period in 2011.

"Investors will be encouraged to hear the second half of the year has had an encouraging start, with retail revenue in the nine weeks to 1 December showing growth of 19%. Mulberry remains on track to open around 20 new stores by the end of the year and construction of a second UK factory has commenced.

"We continue to recommend Mulberry as a ‘buy' for investors willing to accept higher risk. We believe the recent pullback in the share price represents an entry point for a long term investment into a stock that has great potential from its international expansion plans and the increasing numbers of affluent consumers in the emerging markets. Full year revenue is expected to be in line with the markets expectations."