Two of the UK’s top luxury brand names issued trading updates today, and the two fashion houses reported completely different performances.
Home-grown Mulberry Group (LSE: MUL) is proud of its British roots, but the company has made several mistakes over the past few years that are still holding back performance. For example, a few years ago Mulberry’s management decided that the group should raise prices and go upmarket, which alienated the company’s core customer base.
This mistake has continued to drag on performance. Indeed, during the six months ended 30 September, Mulberry’s retail sales fell by 9% to £45.1m, with UK full price sales falling by 12% and outlet sales slumping 23%. Wholesale sales also collapsed by 31% during the first half as customers continued to shun the Mulberry brand.
Fall from grace
Mulberry used to be a darling of the AIM market. The company’s shares traded as high as 2,400p during 2012 but a string of profit warnings, coupled with high expectations, have sent the company’s shares plunging by 74% over the past two years. And it seems as if the company is going to continue to struggle going forward.
Within today’s trading update, the company warned that wholesale sales are not expected to return to growth until 2015/2016. Additionally, while some new brand designs are getting a good reception from customers, footfall in stores is declining overall.
All in all then, Mulberry’s outlook is pretty dismal but even after today’s slump, the company’s shares still trade at a sky-high forward P/E of 44 — a high valuation that does not leave much room for error.
Upbeat update
Meanwhile, Mulberry’s larger peer Burberry (LSE: BRBY) issued a relatively upbeat trading update today. Specifically, the company reported a 7% increase in sales, or 14% on an underlying basis.
Unfortunately, the company continues to feel the effect of a strong pound, which has crimped growth and is expected to reduce reported full-year profit by about £25m. What’s more, management believes that a strong pound will reduce the group’s full year adjusted operating margin from 17.5% to around 17%.
Room to grow
In comparison to Mulberry, Burberry looks to be a much better pick. For example, as the company’s underlying sales continue to tick higher, the shares are trading at an undemanding forward P/E of 18. Current City estimates predict that the company is trading at a 2015 P/E of 16.8.
That being said, as mentioned above Burberry is facing currency headwinds, which will impact the company’s growth. Still, the company’s underlying sales continue to increase at a double-digit rate and a strong pound is out of management’s control. So, on that basis the company remains a good defensive investment as consumers continue to support, and seek out the Burberry brand.
