Mulberry released its half-year results on Tuesday with the 26 weeks to late September clearly a tough time for the brand as it saw sales down and losses widening.

It retained an upbeat stance with its CEO talking of the brand’s overall appeal, but there are clearly big challenges ahead. And it’s almost certain that this set of figures won’t please major shareholder Frasers Group. It may have dropped its bid to buy the business in the face of opposition from controlling shareholder Challice, but Frasers’ chunky stake in the firm and willingness to shout loudly when it’s unhappy mean it’s unlikely to hold back from voicing its opinions.

But let’s look at the numbers. Group revenue fell 19% to £56.1 million and UK retail sales were down 14% at £31.3 million with UK store revenues down 17%. The UK remains its largest market, and it continued to be affected by low consumer confidence.

There was an even bigger decline in Asia Pacific retail sales, which were down 31% at £9.3 million and total international retail sales dropped 17% to £19.5 million. The Asia Pacific reduction was partially offset by a 2% increase in its Rest of World ops.

International retail sales represented 38% of its total in the period (down from 39%). In Asia Pacific, that drop was predominantly due to the continued challenging macroeconomic climate in China and South Korea, with retail sales there down 52% and 29%, respectively. However, retail sales in Australia were up 3% on the same period last year.

The digital performance continued to be robust, with sales representing 33% of group revenue, up from 29% a year earlier. UK Mulberry.com sales increased by 6% and represented 67% of UK digital revenue, up from 58%.

Franchise and Wholesale revenue plunged by 46% to £5.4 million from £10 million, with declines across all countries as “wholesale and franchise partners placed lower orders due to the macroeconomic conditions”, particularly in Italy and Denmark.

But the company said full-price sales represented 78% of retail sales, slightly better globally than the 77% of a year ago, with full-price sales in both the US and Europe increasing by 9% versus the same period last year.

The gross margin was reduced to 67% from 70%, principally due to stock optimisation to manage inventory and working capital levels. But at least operating expenses decreased 16% to £50.7 million as action was taken to manage the cost base.

And the bottom line? The underlying loss before tax widened from £12.3 million to £15.3 million this time and was a result of that reduced revenue and margin partially offset by the lower operational costs. The reported loss before tax was £15.7 million, again wider than £12.8 million of a year earlier.

Highlights

During the period the company undertook an equity fundraising of £10.4 million and increased debt facilities with renegotiated covenants undertaken to strengthen its balance sheet and support its turnaround plan.

Other highlights included collaborations with Rejina Pyo and Eleventy that “drove further global awareness of the Mulberry brand” and product innovation that included the launch of new bags the Soft Bayswater and Islington Bucket bags. These “have been well received by customers”. The company achieved B Corp Certification for sustainability in September too.

As for current trading, Mulberry didn’t give specific numbers but said the “wider macroeconomic environment, including ongoing inflationary pressures, continues to present uncertainty and challenges. We continue to take appropriate cost actions and manage inventory levels to ensure they align with revenue expectations for the remainder of this year and next”.

Trading for the full financial year is “expected to be weighted towards the second half given the important festive trading period”.  This suggests that a strong Christmas period could provide a major boost to the business, but at the same time, a weak one would mean more of the same as far as declining sales and profits are concerned.

Ongoing review

New CEO Andrea Baldo is under no illusions about the size of the challenge he faces and said of all this: “Though I’ve only been in the role of CEO for under three months, the first-half results illustrate the clear need to reprioritise and rebuild the business. Mulberry is an iconic brand…. truly one of a kind. We are now working on initiatives to renew the brand’s relevance, initially for UK consumers and then for our international audience.

“In response to current market conditions, we have taken decisive steps to streamline operations, improve margins, reduce working capital, and strengthen our cash position. This has also meant reviewing our internal team structure to ensure we become a leaner, more agile organisation. Additionally, we’ve made strategic adjustments to our product, pricing, and distribution strategies, and we’ve begun discussions with luxury wholesale partners to ensure we are present wherever our customers shop.”

Since his arrival, Baldo has been working on the firm’s new strategy and his immediate focus “has been and will continue to be, on reprioritising and rebuilding Mulberry”. 

Steps have already been taken to “streamline operations to improve margins, and to ensure teams are well-positioned to work effectively and with agility. Additionally, adjustments have been made to product, pricing, and distribution strategies, and discussions with potential wholesale partners have been commenced to make sure Mulberry is present wherever our customers shop. The strategic review will be concluded in December and the date for its announcement will be made in due course”.

Analyst view

So how did analysts outside of the company view the results? Commenting on the report, Julie Palmer, Partner at turnaround specialist Begbies Traynor, told us: “Unfortunately, Mulberry’s half-year results do not yet show any signs of a recovery for the embattled luxury retailer. The competitive market has not been kind to Mulberry, which has struggled to carve out a significant niche for itself in recent years.

“After rejecting takeover advances from Mike Ashley’s Frasers Group, Mulberry now needs to prove that it can pull off its plans to reshape the business and return to growth. The new CEO has only been in place for a little over three months and he’s focused on costs so it’s encouraging to see the 16% drop in operating expenses as the retailer begins to address its cost base and inventory levels.

“Investors should also be quietly optimistic about the arrival of Andrea Baldo as the new CEO, he has an impressive track record at the likes of Ganni and Diesel, which hopefully heralds the start of a new chapter for the iconic UK brand.

“Baldo’s back-to-basics focus on returning Mulberry to its British heritage sounds promising, particularly if it can pivot away from ailing international markets like China.

“Sadly for Mulberry, it is embarking on its long road to financial recovery against a troublesome backdrop in the UK that is characterised by volatile confidence and higher costs so that will not make life any easier.”