Mulberry (LON:MUL)

Share price: 1096p (-0.3%)
No. shares: 60m
Market cap: £658m

Results for the six months ended 30 September 2016


I hope you'll forgive me for venturing into mid-cap territory with this richly-priced luxury handbag designer.

Current trading: Besides the above figures to end-September, we also get an update on trading to the start of December. Total retail sales are up 4% (or 3% on a like-for-like basis).

Creative Director: Mulberry's new Creative Director has released his first collection of nine bags. He was hired last year, having previously been at Louis Vuitton. The collection is said to have been "well received by our existing customers and a new audience".

The success or failure of this type of business rests to a large extent on the inspiration of the designers. So it's important to have a look at who is behind the wheel in this regard.

While product diversification can reduce the risk, Mulberry is quite concentrated. Last year, leather accessories were 90% of sales, of which bags were more than 70%.

So the stock is almost a "pure-play" on a few handbags!

Related party agreement: Mulberry has a complicated relationship with Challice, its 56% shareholder. I don't think there is anything untoward, but the relationship is worth studying. Challice is going to own a minority share of Mulberry's new North Asian business (Mulberry will own 60%).

My opinion: I think that this company is going places, and the market cap might not be as overvalued as it appears at first glance. In FY 2012, on sales of £169 million, the company generated net income of £25 million (context: current market cap is £658 million).

That year, its H1 sales were lower than those which have just been announced.

Of course, things were different back then: gross margin was 66%, whereas it is currently 59%. Gross margin is still slipping, although the company says that this is just a short/medium term effect while the company invests in new product development.

Unfortunately, this is still far from certain. I'd have no desire, in its current stage of development, to bet my own funds on this company getting the formula right and recovering to prior performance levels. But I'd suggest that it's worth keeping an eye on, just…

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