* FY profit seen at 19 mln stg vs 27 mln stg f'cast
* Shares fall by over a quarter
* CEO to stick to growth strategy
(Writes through, adds CEO comments)
By Neil Maidment
LONDON, Jan 29 Shares in Mulberry
plunged by over a quarter on Wednesday as the British luxury
fashion company warned annual profit would be well below
forecasts due to heavy Christmas discounting in the UK and weak
demand in South Korea.
The warning is a blow to Mulberry boss Bruno Guillon, who
has hiked prices to take its brand more upmarket from a
traditional position of "affordable luxury", and embarked on a
drive to increase the company's profile overseas, targeting
affluent Asian shoppers with new stores in key tourist spots.
Those efforts were undone by fierce and early discounting by
UK retailers ahead of Christmas, which meant Mulberry - whose
sale began on Dec. 26 - lost out as shoppers chose much cheaper
rivals such as Michael Kors and Coach.
Retail analyst Nick Bubb said the transition from a UK
success story into a global brand did not appear to be going
well: "It's all gone a bit wrong for poor old Mulberry since the
spring of 2012, just after Bruno Guillon joined as CEO from
Hermes, when its share price was nearly 2500p and the market cap
was getting on for 1.5 billion pounds ($2.49 billion)."
Guillon told Reuters profit for the year to March 31 was
expected to be around 19 million pounds, almost 8 million below
analyst forecasts. The warning sent Mulberry shares down some 26
percent, hitting their lowest since November 2010 and reducing
its market cap by around 140 million pounds to 400 million.
Despite an unhappy Christmas, which was compounded by a
significant cancellation of wholesale orders from over-stocked
Korean retailers, the group is sticking to its growth strategy,
"The plan stays the same. The strategy's exactly the same,"
he said. "I think that all this is showing is that we still
depend very much on the UK and it has a strong impact on us. We
need to reduce the dependence and the only way to do that is to
go and be more present outside the UK."
Goldman Sachs analysts, who downgraded Mulberry shares to
"neutral" from "buy" on Dec. 20, said on Wednesday it would now
take longer to realize the potential in the Mulberry brand.
This "is reflected in this statement by the continued
revenue growth slowdown compounded by cost growth as the store
opening program continues," they said in a note.
Total retail sales for the 17 weeks to Jan. 25 were down 3
percent on a year ago, the firm said, which included a 7 percent
decline for the crucial eight weeks to Jan. 25. International
sales rose 40 percent year on year.
Adding to a tough home market, Mulberry said cancellations
in Korea meant full-year wholesale sales, worth 35 percent of
group turnover, would be 10 percent down on a year ago.
That fall would wipe out retail sales growth over the year,
the firm said, and when combined with the costs associated with
its recent store opening programme, would mean full-year profits
substantially below forecasts.
Under Guillon, Mulberry, which made around 65 percent of its
sales in the UK in 2013, has focused on improving the quality of
its products and committed to making half of its handbags in
England as it seeks a higher-end position for the brand.
The company, which hired British celebrity model Cara
Delevigne for its spring ad campaign, hopes more expensive
ranges will help retain customers who previously upgraded to
pricier brands, while a greater presence overseas will boost
sales in regions like Asia and the United States, and in Europe
as affluent tourists visit to buy luxury goods.
"I cannot tell you when the strategy will really pick up. I
think it will, because I think that what we do is really
consistent all over the business. What is very important is not
to compromise in our strategy," Guillon said.
The group said in December that while 60 percent of its bags
were still on sale for under 1,000 pounds, new offers priced at
up to 1,500 pounds were increasingly popular. Its latest
Bayswater and Alexa bags sell for up to 4,500 pounds.
The firm will open 15 stores in the year to March and
expects to open another 10-17 in its new fiscal year, including
a flagship store on Paris's Rue Saint-Honore, a tourist hub that
attracts around 1.4 million Chinese shoppers annually.
It added that it was in the final phase for appointing a new
creative director after Emma Hill quit in September, but
declined to give a time frame for an announcement.
($1 = 0.6030 British pounds)
(Editing by Kate Holton and Tom Pfeiffer)