Mulberry slides the most in 14 years after profit warning

British luxury retailer Mulberry traded the lowest in the London Stock Exchange in 14 years after the company issued a profit warning. Shares have slumped by more than a quarter after the warning of more cautious spending in Asia, which was previously a major growth driver.

Tuesday predicted lower profit for the full year, compared to last year, as revenues are estimated to be below market expectations due to a decline in wholesale revenue in the first half of the year. The shares plunged nearly 28 percent to 940 pence, the steepest intraday drop since March 3, 1998, reported Bloomberg, which also stressed that this slip has wiped up to 227 million pounds off the company’s market value.

The unscheduled announcement that profit is likely to drop compares with analyst estimates for pretax profit to rise to 41.8 million pounds in the fiscal year through March from 36 million pounds in the previous 12 months.

“There is a systemic trend that the whole luxury sector is getting hit,” said Bill Blain, a strategist at Mint Partners Ltd., said on Bloomberg Television in London.. “Any companies seen as being slightly niche are the first to suffer from a change in spending patterns. That is part of the reason for this enormous collapse this morning.

Wholesale shipments in the six months ended Sept. 30 fell 4 percent to 30 million pounds, as a result of which the maker of 1,100-pound metallic snake-print Del Ray handbags said it expects full-year revenue growth to miss estimates. Among the reasons for the decline were a strategic decision to trim international wholesale accounts and a tougher climate in Asia that led to “cautious ordering,” Mulberry said.

Commenting the unexpected profit warning, Bruno Guillon, CEO, said, "Mulberry's core UK retail business and key wholesale accounts continue to perform well in the context of a more challenging external environment. Although international retail sales are behind expectations, newly opened stores are performing satisfactorily and we are on track to open our target of 15-20 stores during 2012/13.''

Mulberry now expects group revenue growth for the year ending March 31, 2013 to be below market expectations. As a result, combined with the investment being made in international retail expansion, Mulberry now expects full year profits to be below last year.

Taking into account the latest news, analysts at Panmure Gordon tentatively kept their 'buy' recommendation, commenting: "Mulberry's profit warning is severe. Given that it has had a tremendous run in terms of both share price and profits, it is now at the crossroads. Either we are wrong about the scale of its international opportunity, or this is just a blip. While we are not entirely satisfied about all of the reasons given for the profit warning, we tend towards the latter view."