Mulberry issues surprise warning due to heavy discounting over Christmas period

Mulberry saw its shares drop by 18%, after it told the City the UK trading environment had “deteriorated” with “substantial discounting” over the Christmas period. UK sales were down 3% in the 17 weeks until 25 January, “reflecting the competitive environment in the UK”, the company said. International sales were up sharply, rising by 40%, but Mulberry said the cancellation of large orders from Korea meant it would end the financial year with wholesale sales down 10% on last year. Total sales are expected to be flat compared with last year.

In a financial statement, Mulberry said that “the lower than anticipated level of sales is expected to result in profit before tax for the year ending 31 March 2014 being substantially below current market expectations”. A Reuters poll of analysts had previously pencilled in £29.6m in profits for current financial year.

The latest alarm follows a string of profit warnings for the company and underscores the scale of the task for the label as it attempts to transform itself into an international fashion powerhouse with an appeal for well-heeled shoppers in emerging markets. Mulberry generates more than 60% of its sales in the UK, but has been expanding abroad.

By the end of March it will have opened 15 new stores, including in the United States, China, as well as a flagship store on the Rue Saint-Honoré in Paris, a shopping mecca for wealthy Chinese tourists. Bruno Guillon, Mulberry’s chief executive, said the company had faced “tough trading conditions”, which would affect profits. “Despite this, the company continues to be cash generative and to invest in the ongoing process of transforming Mulberry from a domestic to a global luxury brand, the progress of which is demonstrated by the continued growth in international retail sales,” he said.

Guillon, who joined the label in 2012 from Hermes, has been criticised for hiking prices in a bid to push Mulberry more upmarket, from an affordable luxury into a full-scale designer brand. Its Alexa bag, named after model Alexa Chung, sells for up to £4,500.

Mulberry Spring Summer 2014 ad campaign