AIM-listed luxury fashion brand Mulberry (LSE: MUL) was the highlight stock in yesterday’s trading session. Its share price rose by almost 25%. But in my search I have found no reason why that should suddenly be the case.
Is something in the works? In my experience I have seen that when a share’s price shows sharp movement without any apparent reason, sooner rather than later important information surfaces that was probably just speculation earlier. It is possible that something like that has happened in the case of Mulberry.
As an investor, I am not one for giving in to speculation, however. I like solid stocks whose performance and prospects can be verified. And that is the lens through which I would like to assess this stock too.
Mulberry’s performance improves
First, let me consider its share price performance. In the past year, Mulberry has not disappointed. Quite the contrary. Its share price more than doubled between June 2020 and May 2021. It has declined since, possibly as investors sold off its shares at a profit. However, in relative terms, the share price is still high compared to last year. Higher by a whole 75% actually.
This is a pretty good performance. And thankfully, it is not all inexplicable. A couple of months ago, the company disclosed that it expects a small pre-tax profit for the year ending March 27 2021. Clearly, this means that the company’s performance picked up significantly in the second-half of the year. During the first half, it had reported a pre-tax loss of £1.9m.
The future looks good too
It also said that this is because of “continued strong growth” in its Asian markets, a pick-up in online sales and fewer discounted sales. These factors make me optimistic about Mulberry’s future, as does the fact that Asia-Pacific accounts for around 40% of its revenues. China and South Korea are its promising markets in this region. China is a big market and its growth has picked up substantially in the past year, which bodes well for demand in the future.
Also, a successful pivot towards online sales will be key for retailers going forward. And Mulberry has already shown some success in that. More than half of its total sales were digital in the first half of the 2020-21 financial year. I am sure this is partly because of the lockdowns, because in the year before, the number was much smaller. But I also believe that it is likely that some sales have permanently moved online. It is to the brand’s credit that it has been able to drive up online sales significantly.
But there are still questions
Yet I am uncomfortable with the constant fluctuations in its share price (it is down over 3% so far today, for instance). Also, its financial performance has been underwhelming in the past few years. Will it be able to turn around sustainably? I do not know. Mulberry is on my watch list, but I would not buy it yet.
