UPDATE 2-Mulberry sales recover in second half

Thu Dec 6, 2012 12:37pm GMT

Quotes

   

* H1 pretax profit down 36 pct to 10.0 mln pounds

* Revenue up 6 pct to 76.5 mln pounds

* Like-for-like retail sales up 11 pct in 9 weeks to Dec 1

* Year revenue and profit seen in line with expectations

* Shares up 1 pct

By Neil Maidment

LONDON, Dec 6 (Reuters) - British luxury fashion group Mulberry said a focus on better quality raw materials and price increases had helped sales improve in the weeks since its October profit warning.

Mulberry, whose shares lost a quarter of their value after the profit alert which it blamed on lower-than-expected wholesale revenue and disappointing international retail sales, said on Thursday sales at stores open over a year had increased 11 percent in the nine weeks to Dec. 1.

That offset news of a 36 percent slump in first-half profit from the handbag and leather goods maker, sending its shares up 1 percent.

Mulberry, which sells Bayswater handbags for 1,400 pounds ($2,300), said pretax profit for the six months to Sept. 30 fell 36 percent to 10 million pounds, as a 5 percentage points fall in gross margin and higher operating costs offset a 6 percent rise in revenue to 76.5 million pounds.

"The challenge today for Mulberry is to convert British success into global success stories," said Chief Executive Bruno Guillon, who joined the company from luxury brand Hermes in March. "It is more an evolution than a revolution".

The firm said recent sales, buoyed by 12 percent price hikes, were encouraging for the remainder of its year.

Mulberry shares were up 10 pence at 1,161 pence at 1156 GMT, valuing the business at about 690 million pounds.

WH Ireland analyst John Cummins remained neutral on the stock ahead of its key Christmas period.

"We continue to see Mulberry as a strong long term growth story given the immaturity of the brand in many of the largest luxury goods markets globally and revitalised strategy under the new CEO," he said.

The firm is limiting the amount of stock heading to lower quality wholesale accounts as part of a push to boost the value of the Mulberry brand.

In retail it is also focusing on making products for full-price stores over discounted outlets, while higher quality leather is being used across the firm.

That strategy however, coincided with a slowdown in wholesale demand and international sales, forcing the firm to warn in October that annual profit would be below the 36 million pounds made in 2011-12.

On Thursday it said it would meet current full-year market forecasts - about 30 million pounds according to Reuters data.

Guillon said the revamped wholesale division would return to growth in the first half of 2013/14 but that the changes would result in a 10 percent decline in annual revenue this year.

Mulberry also reaffirmed its commitment to overseas expansion in Western European tourist locations, North America, China and Japan, targeting 15 to 20 store openings per year.

In England, where it aims to have 50 percent or more of its leather accessories made, the group has started work on a second factory and is reviewing additional facilities.

"We are convinced that in this quality strategy the 'Made in England' label is crucial. If you go to China, the U.S. or Paris people want to buy real English brands and they want to buy an English product," Guillon said.

On Thursday, Italian fashion house Prada SpA, popular for its coloured Miu Miu dresses and leather handbags and shoes, said it beat forecasts with a 30 percent rise in third-quarter net profit, shrugging off concerns about a slowdown in demand for luxury goods.

Last month fashion rival Burberry said it was in strong shape heading into Christmas as wealthier shoppers spend on its top-end ranges, helping ease the pain of a slowdown in China where demand for luxury goods had boomed.