Mulberry shares see 30 per cent drop, the latest casualty of high street woes

Sell on the rumour, buy on the fact, so they say. Mulberry issued a fact, and shares fell, when should we buy? Indeed, should we buy?

Article updated: 23 August 2018 8:00am Author: Michael Baxter

I have a lot of sympathy with words spoken by a onetime Lord Rothschild - it was during the 19th Century in France, during the period when the extended effects of the Battle of Waterloo were still at work. He said it was a time to buy in France, his trusty assistant said “but the streets of Paris were covered in blood” and he replied: “buy when there’s blood on the streets, even when some of the blood is your own.”

Well, things are hardly that bad, but it’s not a good time for retail.

BDO recently released a report saying that retail sales fell in each of the first six months of this year, it was the first time this has happened in 12 years.

Working out why is not rocket science. Real wages have seen an awful decade, and while they are now rising again, they are only rising at the kind of pace that would embarrass a snail. Combine weak real wages with the rise and rise of online - and Amazon - and you have pretty much got the reasons.


But Mulberry is not a retailer, it’s a brand, most known for its super expensive handbags.

Its appeal lies with potential for sales overseas, especially Asia, and really especially, China, Taiwan, Japan and South Korea.

And that appeal meant an awful lot of hope invested in the company. In June, its PE ratio hit 93.

But working out why markets felt such a share price was justified is a puzzle.

Take pre-tax annual profits: they have been languishing way below the level they reached in 2014. Turnover has seen slight growth since 2015, but hardly the heady stuff that justifies such a high PE.

And now the company has said that it is set to take a £3 million hit from the House of Fraser disaster. Mike Ashley might have plans to turn it into the Harrods of the high street, a kind of Sports Direct without the sports and direct bits, but creditors are not getting anything - or so I understand.

The company made a £6.9 million profit in its last year, so that loss will hurt. The company has plenty of cash, however, so it can afford it.

Is it now a bargain?

A 30 per cent fall on a company with a 93 PE, is not enough to make it seem cheap.

Even so, the low pound should help its international effort. There is a lot of overseas potential, I just wonder if we have seen enough blood yet.

And high street

One could say ditto for the high street in general. Online remains the place where the growth is: Boohoo, ASOS and of course Amazon might be the winners.

These views are those of the author alone and do not necessarily reflect the view of The Share Centre, its officers and employees

Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.