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Burberry capped; Mulberry handbagged; Jimmy Choo set for a shoeing?

Published: 20:51 14 Oct 2014 AEDT

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The flotation of expensive shoes maker Jimmy Choo could be in doubt after two UK luxury brands rocked the market on Tuesday.

Luxury goods maker Burberry (LON:BRBY) was the worst performing blue-chip Tuesday morning after it reported “some softening in growth” from Chinese customers, whether they be buying at home or travelling abroad.

In the first half of its financial year, revenue at Burberry increased by 14% on an underlying basis, balanced across regions and major product divisions.

Like-for-like retail sales were up 10% year-on-year, but that masked a second quarter slowdown in growth, to 8%, from 12% in the first quarter.

The company, one of the great British retail successes in recent years, has seen growth hampered by the strength of sterling, and while foreign exchange headwinds show signs of abating, this welcome relief has come at just the time when shoppers at the luxury end of the market appear to be keeping their handbags - presumably not Mulberry bags - firmly shut.

As well as a softening in demand from Chinese consumers – not helped by the current civil unrest in Hong Kong - the Ukraine crisis has put a bit of a crimp on demand in Russia.

Burberry said the “more difficult external environment” is expected to result in slight downward pressure on the retail/wholesale margins of the group as it continues to invest in key initiatives to drive long-term profitable growth.

“Our goal to realise further margin improvement over time remains unchanged,” the company said.

Burberry shares were down 4.2% in mid-morning trade and disappointing though that fall will be to Burberry holders, it counts as a mild duffing over compared to the handbagging Mulberry (LON:MUL) is getting.

Around one-sixth of the company’s stock market value has been wiped off – and that’s an improvement on the earlier position, when the shares were down 25% - after the company, which had been careful to lower expectations for the first half of its financial year, shocked the market by revealing that things had been even worse than expected.

The handbag maker, still trying to recover from a disastrous move upmarket under previous boss Bruno Guillon, reported revenues were down 17% year-on-year in the six months to the end of September, with the only consolation being that the fall-off was less severe towards the end of the reporting period.

UK full price sales were down 12% to £20.9mln, with sales adversely affected by a decline in footfall, particularly tourist shoppers.

International retail sales were up 20% to £7.5mln, and although online sales now account for 10% of group sales, up from 8% a year earlier, they only improved by 1% year-on-year to £6.6mln.

Mulberry’s wholesale sales declined 31% to £19.6mln, which caught the company on the hop. It attributed the bigger-than-expected fall to a combination of inventory reduction and conservative ordering by Its Asian and European franchise partners.

“We expect the wholesale sales pattern to continue for the remainder of this year before improving during 2015/16 as partner store sales stabilise and their inventories reduce,” the company said.

Mulberry shares were the biggest fallers on Tuesday morning in London, and the clobbering of the “pair of berries” (Burberry and Mulberry) must be making JAB Luxury, the owners of the Jimmy Choo brand, very nervous ahead of the company’s planned flotation.

Reports suggest the designer footwear brand, which according to its LSE prospectus “offers an empowered sense of glamour and a playfully daring spirit”, could be valued at between £550mln and £630mln when – or if – it floats. Recent reports indicate that the range for the flotation price has narrowed to 140p – 160p, a 20p reduction in the top end of the range; the shocking updates from Burberry and Mulberry could drive the flotation price down towards the lower end of that range.

Jimmy Choo’s customers may, literally, be well-heeled but trading updates from Burberry and Mulberry indicate that sometimes, even the fabulously rich have to rein in discretionary spending.

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