UK's £1,000 bag maker Mulberry to take £3m hit from House of Fraser collapse

Bag maker Mulberry will be hard hit by retailer chain's demise. Reuters

British luxury bag maker Mulberry said on Monday it would take a £3 million (Dh14.03m) hit from the collapse of House of Fraser, adding to the toll it faces from tough conditions in its home market.

Mulberry operates 21 concessions in House of Fraser, the department stores group that was bought from administrators by Mike Ashley's Sports Direct this month.

Shares in Mulberry fell 30 per cent to an eight-year low after it said full-year profit would be materially reduced if trading remained challenging, particularly in House of Fraser stores, which make up 40 per cent of its UK outlets.

The company, whose bags sell for around £1,000, said House of Fraser costs, reflecting debtor balances, fixed assets and restructuring, would be an exceptional item in its results for the six-months to the end of September.

It said the upheaval at House of Fraser was compounded by deteriorating trading conditions in Britain.

"Since the group reported in June 2018, the UK market has continued to remain challenging and sales in House of Fraser stores have been particularly affected," it said.

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"If these sales trends in the UK continue into the key trading period of the second half of the financial year, the group's profit for the whole year will be materially reduced."

Mulberry said trading in the rest of the world was broadly in line with its expectations and its cash position was strong, supporting its ambition to become a global luxury brand.

Sports Direct bought House of Fraser for £90m after an earlier rescue plan, involving shutting 31 stores, was thwarted when Chinese group C.banner pulled out of a plan to invest.

Media reports have said Sports Direct only plans to pay suppliers and concession operators for goods sold since it took over the group.

House of Fraser is an important partner for Mulberry, with its department stores containing most of the luxury group's concessions outside London.

Analysts, however, said the cost of the group's collapse was not the only worry for investors.

"It's the combination of the charge and the currently unquantified profit warning for the rest of the year that is really putting the hurt to the company's share price," said Accendo Markets analyst Artjom Hatsaturjants.

"And until Mulberry can decouple its business model from reliance on department store concessions (or trading conditions markedly improve), its share price will maintain its downward momentum."

Mulberry reported pre-tax profit of £6.9m for the year to end-March, down 5 per cent on the previous year, on revenue of £169.7m.