Mulberry Group PLC Half Yearly Report (8522S)

TIDMMUL

RNS Number : 8522S

Mulberry Group PLC

06 December 2012

MULBERRY GROUP PLC ("Mulberry" or the "Group")

INTERIM RESULTS FOR THE SIX MONTHS ENDED 30 SEPTEMBER 2012

Mulberry Group plc, the English luxury brand, is pleased to announce its results for the six months ended 30 September 2012.

FINANCIAL HIGHLIGHTS

   --      Total revenue up 6% to GBP76.5 million (2011: GBP72.3 million)

o Retail revenue up 13% to GBP46.5 million, up 7% like-for-like (online revenue up 44%)

o Wholesale revenue down 4% to GBP30.0 million, reflecting account rationalisation and a more challenging environment

-- Gross margin down to 61.3% (2011: 66.2%), largely reflecting quality initiatives, and expected to recover partially in the second half of the year

-- Operating costs up GBP4.6 million, of which GBP3.7 million results from an increased number of directly operated international stores

   --      As a result, profit before tax down 36% to GBP10.0 million (2011: GBP15.6 million)

OPERATING HIGHLIGHTS

   --      Reinforcing luxury positioning to drive sustainable growth

-- Eight new international stores opened during the period in Europe, North America and South Korea

   --      Commenced construction of second UK factory

CURRENT TRADING AND OUTLOOK

-- Encouraging start to the second half of the year with retail revenue up 19% for the nine weeks to 1 December 2012, like-for-like sales up 11%

-- Four new stores opened since 30 September 2012; on track to open 17 to 20 new stores during the 2012/13 financial year

-- Although dependent upon Christmas trading, full year revenue and profit are anticipated to be in line with market expectations

BRUNO GUILLON, CHIEF EXECUTIVE, COMMENTED:

"Mulberry has delivered 6% sales growth for the period. The UK retail business and key wholesale accounts have continued to perform well in the context of a challenging economic environment. The international retail rollout is on track with 17 to 20 new store openings expected for the full year. Profit before tax for the period was below last year, mainly reflecting quality initiatives and increased investment in international retail expansion to drive future growth.

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. During the period, 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."

FOR FURTHER DETAILS PLEASE CONTACT:

 
 Pelham Bell Pottinger 
 Daniel de Belder / Lucy Miles         0797 792 7142 / 0792 047 7184 
 
 Mulberry Investor Relations 
 Amelia Fincher                                        0207 605 6771 
 
 Altium 
 Ben Thorne / Melanie Szalkiewicz                      0207 484 4040 
 
 Barclays 
 Jon Bathard-Smith / Nicola Tennent                    0203 134 9803

Chief Executive's report

During the six months to 30 September 2012, Mulberry has continued to grow revenue whilst using our strong balance sheet to invest for future growth.

Sales increased 6% to GBP76.5 million for the six months to 30 September 2012 (2011: GBP72.3 million), reflecting growth in retail sales, partially offset by a decline in wholesale sales.

RETAIL

The retail business saw continued growth with revenues up 13% to GBP46.5 million (2011: GBP41.0 million) and up 7% like-for-like.

UK retail sales were up 9% to GBP39.2 million (2011: GBP35.8 million). UK full price sales performed well, up 14% compared with the same period last year, despite a challenging economic climate. UK outlet sales were weaker, down 13%, in part due to a strategic decision to cease making product specifically for the outlet business.

International retail sales were up 40% to GBP7.3 million (2011: GBP5.2 million). During the period we opened stores in San Francisco, New Jersey and Zurich and a shop-in-shop in Berlin. We remain confident in our international expansion strategy.

Online sales, which are included within the two geographic segments above, were up 44% to GBP6.9 million for the first half of the year, accounting for 9% of Group sales (2011: 7%).

WHOLESALE

Wholesale revenue was down 4% to GBP30.0 million (2011: GBP31.3 million), reflecting three factors:

- A strategic decision to rationalise certain international wholesale accounts in order to improve the quality of Mulberry's distribution network, which will result in a reduction in wholesale sales in the current year;

- A more challenging external environment in Asia, resulting in cautious ordering by franchise partners; and

- Tough half year comparatives which were boosted by the restocking of the wholesale channel last year.

The steps we are taking to improve the quality of the wholesale distribution network are expected to have a positive impact on wholesale sales growth in the future.

During the period, our South Korean partner opened three more stores in Seoul and one in Cheonan.

FINANCIAL

Gross margin declined to 61.3% (2011: 66.2%) due largely to the cost of quality improvements in raw materials and manufacturing techniques. Gross margin is expected to recover partially during the second half of the year as a result of the seasonal sales mix and price rises implemented during November 2012.

Net operating expenses for the period increased by GBP4.6 million to GBP37.1 million (2011: GBP32.5 million). Of the increase, GBP3.7 million related to the costs of new directly operated international stores.

Due to the decline in gross margin and the accelerated investment in international retail expansion, profit before tax fell 36% to GBP10.0 million (2011: GBP15.6 million).

Inventories have increased to GBP36.9 million from GBP32.5 million at the start of the period reflecting in part the growth in the business, but also lower sales than originally anticipated. Overall, the Group balance sheet remains strong with cash of GBP12.6 million at 30 September 2012 (2011: GBP16.7 million) and no debt.

Capital expenditure for the period was GBP8.3 million and is planned to be around GBP20 million for the full year, with more than half representing store expenditure. This continues to be funded from internally generated cashflow.

STRATEGY

Over the last six months, we have continued to evolve and implement the Group's long term strategy. The key challenge for the management team will be to transform a British success story into a global success story and in this context our four key strategic themes are outlined below:

   1.   Reinforce luxury positioning:

A key element of the Group's strategy is to reinforce Mulberry's luxury positioning, adapting to meet the needs of international luxury consumers, whilst retaining the UK customer base. Five key areas of focus will be:

- Quality: Commitment to high quality leather craftsmanship. In the first half we have continued to make product quality enhancements, including in our leather and components sourcing;

- Made in England: This is central to Mulberry's brand identity and we will continue to expand our UK production base. We have commenced construction of our second English factory and are reviewing availability of additional facilities;

- Marketing communications: To reflect Mulberry's luxury positioning, heritage and craftsmanship;

- Distribution: Consistent luxury positioning in all distribution channels. For example, we have developed an updated store concept which was recently launched in our relocated Edinburgh store and which supports all product categories. In addition we have upgraded the wholesale distribution network in Europe which is having an adverse impact on wholesale sales during the 2012/13 financial year but is expected to drive high quality sales growth over the medium term; and

- Service: Excellence of customer experience, continuing to build service capability through recruitment and training.

   2.   International expansion:

International expansion is a key growth driver for Mulberry as the brand has a substantial business in the UK, Scandinavia and South Korea with more limited penetration in other markets. While continuing to support the UK business, we are prioritising expansion in the large luxury markets of Western Europe (with a focus on tourist locations), North America, China and Japan.

Mulberry's international distribution strategy includes both retail and wholesale channels:

   -     Retail: Directly operated stores and shop-in-shops, supported by the global online platform www.mulberry.com 
   -     Wholesale: Partner operated stores and shop-in-shops and key wholesale accounts.

Eight international stores were opened during the first half of the year and we are on track to open 17 to 20 stores by March 2013. We are making good progress in identifying appropriate new store locations and continue to target 15 to 20 new store openings per annum, being a combination of both directly operated and partner stores.

   3.   Product development

Creativity and craftsmanship anchor Mulberry's business and the Group is focused on the continued development of handbags and other existing categories:

- Handbags to remain our core category. Focus on creativity, innovation and quality, introducing new designs and broadening colour and finish options for established styles;

- Expand the offer in selected categories: Increase the product offering in women's shoes, small leather goods and fashion accessories such as belts and scarves, offering a greater selection of styles and colours;

- Reinforce men's accessories range: Expand the range, adapt for the international customer and support the men's business with dedicated men's departments in new stores; and

- Continued creativity in ready-to-wear: Focus on creativity in ready-to-wear as an important category for building global brand awareness.

   4.   Leverage operations to support growth

We continue to pursue a balanced investment programme covering new store openings, production facilities, supply chain and IT systems to build the foundations for continued future growth.

We will also continue to invest in people, building our internal skill base in all areas of the business. Our new factory in Somerset will create 300 new jobs and we are committed to recruiting and training skilled leather craftspeople.

In light of Mulberry's growing geographic footprint, we have recently completed a restructuring of the commercial side of the business, appointing regional heads for Europe and North America. The new structure is designed to bring consistency and co-ordination between the retail and wholesale businesses and drive international growth through regional focus and accountability.

In line with the Group's strategy, the Appointments and Remuneration Committee of the Board has approved a new long term incentive plan which has been designed to incentivise and retain key management by rewarding the delivery of profitable growth. The new plan is performance based and has been developed in accordance with best practice. The new scheme replaces the existing incentive plan and the first performance related options under this plan will be issued during December 2012.

CURRENT TRADING AND OUTLOOK

Based on trading in the second half year to date, the outlook for the six months to 31 March 2013 is encouraging, despite the challenging economic environment.

During the nine weeks to 1 December 2012, total Retail sales were 19% above the same period last year. Like-for-like sales were up 11% during the period.

During the second half of the year we continue to expect the impact of the wholesale account rationalisation and cautious ordering by partners to drive a decline in wholesale revenue, expected to be approximately 10% for the full year.

We continue to focus on developing the Mulberry store network through directly operated and partner operated stores. Since 30 September 2012 we have opened a flagship store in Singapore, standalone stores in Frankfurt Airport and Washington DC, and a shop-in-shop in Munich.

Before the end of the current financial year, we expect to open a further five to eight stores, two of which will be in China. This will bring the total worldwide openings for the financial year to 17 to 20.

Although dependent on the important Christmas trading period, we currently anticipate full year revenue and profit to be in line with market expectations. We remain confident in the long term opportunity and outlook for the business.

DIVIDENDS

The full year dividend of 5.0 pence per ordinary share was paid on 17 September 2012. In line with prior years, the Board is not recommending the payment of an interim dividend.

Bruno Guillon

Chief Executive

6 December 2012

Consolidated income statement