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Mulberry Stock Plunge Sends Chill Down Luxury Sector

CNBC.com
Tuesday, 23 Oct 2012 | 7:25 AM ET

Call it two-for-two. For the second time in as many months, a London-listed luxury company has warned on its profits, sending a shock wave through the luxury goods sector.

Kirstin Sinclair

Shares of British-listed Mulberry, slumped 25 percent on Tuesday, after the maker of celebrity handbags used by stars such as Keira Knightley said wholesale shipments to third-parties were down 4 percent to 30.3 million pounds ($19 million) in the six months to September. As a result, the company said group revenue for the financial year-ending March 2013 would be "below market expectations."

A "more challenging external environment in Asia" was one of the key factors cited by the company, whose handbags include the Bayswater and the Del Rey. The Asian market has kept the luxury sector relatively buoyant in recent years.

Shares of Burberry , fell nearly 4 percent on the news while Hermes and LVMH dropped around 1 percent. Mulberry shares had a strong run earlier this year, gaining 36 percent between January and early May. Since then, however the shares have pulled back on worries about slowing global demand for luxury products.

Mulberry sells its handbags both through its retail stores and third-parties. The company said in a statement that "investment being made in international retail expansion," which had already been flagged, would also affect profits.

Analysts at Panmure Gordon cut the price target on the stock on Tuesday from 2,000 pence to 1,100 pence but retained their buy rating.

"Mulberry's profit warning is severe. Given that it has had a tremendous run in terms of both share price and profits, it is now at the crossroads. Either, we are wrong about the scale of its international opportunity, or this is just a blip," Philip Dorgan and Jean Roche of Panmure Gordon wrote in a note to clients on Tuesday morning.

Last month, the market value of Burberry, the maker of raincoats with its distinctive check and handbags, dropped 18 percent after the company warned full-year profit would be at the lower end of market forecasts due to slowing sales.

Analysts have warned that a major pullback in spending by Chinese tourists because of a slowdown at home will continue to hurt the luxury sector, especially stocks such as LVMH, Tiffany and Coach. A drop in gifting and spending on mistresses in China, according to one report, is also hurting demand for luxury goods.

Contact Europe: Economy

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