19 September 2014

Mulberry

BUY

11/12/2009 James Crux

Luxury bags and accessories business Mulberry is wearing the recession well, having issued strong interims and said that full year numbers are set to smash forecasts.

First half results to September from Mulberry showed both sales and pre-tax profits increased by 16% to £32.3m and £1.5m respectively, driven by strong sales through its own shops. UK retail sales grew by 41% – 39% on a like-for-like basis – and Mulberry finished the half unfettered by debt and with £4.3m cash in the coffers.

Godfrey Davis, CEO, attributed the health of the numbers, achieved in the midst of severe recession, to growing levels of demand across Mulberry's retail and wholesale operations (wholesale was somewhat weaker, but has since shown improving trends).

Though gross margins came under pressure, contracting to 55% (2008: 57.7%) on the rising cost of leather bought in euros and metal components purchased in US dollars, Mulberry mitigated the effects by successfully passing on price increases to consumers. Furthermore, in another positive development, high margin online sales surged 80% higher, rising from 4% to 7% of the group's top line.

With UK retail like-for-like sales running 46% ahead in the last ten weeks, Mulberry expects its full year numbers to now ‘substantially exceed’ forecasts, prompting significant upgrades from analysts. For March 2010, investors can now expect pre-tax profits of £4.8m, upgraded from an earlier £2.9m, earnings of 5.5p and a 2p dividend.

Though the shares sell for a pricey looking 27 times earnings, that multiple drops to less than 20 on next year’s 7.9p EPS estimate and given the group’s global expansion potential and profits profile, Mulberry is one of the few retail plays worth mulling over at present.

Tags: AIM, Cash, Dividend, Growth Stocks

Sector: General Retailers

Companies: Mulberry

Market cap: £89.48m

PE Forecast: 27.6

Share price: 152p

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