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Mulberry Reports Profits Squeeze In Tough Economic Climate

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MULBERRY
Mulberry sees its profits slide, but analysts remain positive for its short term future | Getty Images

British luxury retailer Mulberry has reported a slight increase in sales, but profits before tax fell by 36% on 2011 figures.

Mulberry blamed the profit drop on operating costs rising by £4.6 million, of which £3.7m results from an increased number of directly operated international stores, and 'quality initiatives' hitting its gross margins, as well as the challenging economic environment.

The results, which were for the six months leading up to 30 September 2012, showed profits were £10m, down from £15.6m in 2011, and that wholesale revenue down 4% to £30m.

More positively, retail revenue up 13% to £46.5m, with online revenue rising by 44%.

Bruno Guillon, chief executive of Mulberry, said in a statement: "We continue to focus on creativity, craftsmanship and quality and will place great emphasis on reinforcing Mulberry's luxury positioning through the quality of our products, retail experience, marketing communications and choice of distribution channels.

"We have rationalised certain wholesale accounts and refocused the outlet business which has impacted financial performance in the short term. However, we firmly believe that this is in the long term interests of transforming Mulberry into a global luxury brand.

"British leather craftsmanship is central to our brand and we have now commenced construction of our second UK factory which will create 300 new jobs and open during the summer of 2013."

The trading statement concluded that Mulberry expected to meet analysts end of year expectations, based on good predicted Christmas sales.

mulberry
Mulberry's store in Floral Street, London

Richard Perks, director of retail at Mintel, told the Huffington Post UK the figures looked "a mixed bag".

"Sales performance isn't bad at all, especially up against the likes of Burberry - but we definitely get the impression that accessories are stronger than clothing at the moment. But there is a very big drop in margins," he said.

"On the whole, the reasons given make sense - more spending on directly operated stores and more emphasis on quality - but is that really enough to account for profits falling by a third?

"All in all - it's disappointing, but the business looks sound and the strategy of concentrating more on directly operated stores and product quality does make a lot of sense - that, after all, is what the business is all about."

Nick Hood, business analyst at Company Watch, was more positive. "Mulberry's overall financial position is robust. We calculate health scores based on published accounts (comparing companies' actual results with seven key financial ratios on profitability, assets and funding to rate their financial strength) and Mulberry's score comes in at a near perfect 98 out of a possible 100, leaving no concerns about the company's ability to get over this profit blip."

Exports are a big part of what makes Mulberry successful - this year it's started building it's second major manufacturing factory in the UK and has opened eight new international stores in Europe, North America and South Korea.

In September, Huff Post UK reported on how fashion manufacturers were weathering the economic storm well by making the most of their export markets.

Lee Coleman, founder of Quintessentially Gifts, told the Huff Post UK that in a recession, people were opting to spend what little cash they have on hand-created bespoke items.

“British heritage has always been an influence. Designers such as Mulberry and Ettinger are bringing all their business back to the UK in order to retain its heritage and history, in turn making their brand stronger.”

“A lot of manufacturing takes place in the countryside – Mulberry in Sussex for instance. People buy into this. All the above brands are steeped in Britishness and designers are still discovering the hidden treasures that this island has in abundance.”

mulberry bag

Mulberry 's hand crafted designs have traditionally done well in Asia

Shares prices in Mulberry have been falling since May, dropping by a quarter following its profits warning in October.

Its share price has since recovered, and rose a further 0.4% following the half-year results release, according to the BBC, but still remains more than 50% down from its peak in May.

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