Mulberry downgraded to a ‘hold’ as reliance on UK sales impacts profits

As Mulberry issues a profit warning and the share price falls by more than 25% Helal Miah, investment research analyst at The Share Centre, explains what it means for investors.
 
“In a trading update this morning, Mulberry warned that pre-tax profit for the year ending March 2014 will be substantially below market expectations, resulting in the shares dropping over 25%. Stiff competition and discounting by rivals in the UK during the important holiday period has been the cause, with UK sales falling 3% during the 17 weeks to 25 January. The disappointment of wholesale order cancellations from South Korean customers has also had an impact. Management now expect total sales for the full year to be in line with the previous year.
 
“The hope for a turnaround in the fortunes of Mulberry had been its international expansion plans, which have actually performed very well, up 40% during the same period. However, starting from a low base, this turnaround has been too slow with the group still heavily reliant on UK sales. We are downgrading our recommendation for investors to a ‘hold’ as our confidence of the group’s transition to a more international business has been dampened. We still believe that this will be achieved in the long term, however there is likely to be too many bumps along the way to warrant the risk.”