Daily Management Review

Profit Warning Issued By Britain's Mulberry Due To House Of Fraser Burdens


Profit Warning Issued By Britain's Mulberry Due To House Of Fraser Burdens
A 3 million pound ($3.8 million) hit would have to be taken by British luxury bag maker Mulberry from the shutdown of House of Fraser which added to the problems that the company has been facing in its domestic market. this was announced by the company on Monday.
21 concessions in the department stores group House of Fraser are run by the Mulberry. The company had bought House of Fraser from administrators by Mike Ashley's Sports Direct this month.
Mulberry said that its full-year profit would be materially reduced if the trading remained challenging especially in the stores of House of Frasers that account for 40 percent of its UK outlets. This announcement results in a 30 per cent fall in shares of the company.
In the financial results of Mulberry for the six-months to the end of September, there would be an exceptional item dedicated to the costs related to debtor balances, fixed assets and restructuring at the House of Fraser, accounted the company whose bags sell for around 1,000 pounds.
Deteriorating trading conditions in Britain had compounded the problems at the House of Fraser.
"Since the group reported in June 2018, the UK market has continued to remain challenging and sales in House of Fraser stores have been particularly affected," it said.
"If these sales trends in the UK continue into the key trading period of the second half of the financial year, the group's profit for the whole year will be materially reduced."
The company however assured that sale and revenues in the rest of the international markets was moving according to the expectations of the company which has strengthened the cash flow in the company and are supportive for the aims of the company to grow into a global luxury brand.
Following the pulling out of a rescue plan for House of Fraser by Chinese group C.banner, the 31 stores of the company that was to be shut down was bought for 90 million pounds by Sports Direct.
According to media reports, suppliers and concession operators of House of Frasers would be paid for goods sold by Sports Direct only since it had taken over the group. 
The stores of House of Fraser offers most of the luxury group's concessions outside London and therefore is an important partner for Mulberry.
There are however other problems of investors of House of Fraser, sat analysts.
"It's the combination of the charge and the currently unquantified profit warning for the rest of the year that is really putting the hurt to the company's share price," said Accendo Markets analyst Artjom Hatsaturjants.
"And until Mulberry can decouple its business model from reliance on department store concessions (or trading conditions markedly improve), its share price will maintain its downward momentum."
For the fiscal year ending in March. Mulberry notched up a pre-tax profit of 6.9 million pounds, against revenues of 169.7 million pounds, which was 5 per cent less than the year before.