Handbag maker Mulberry has warned that it will face a slump in profits after taking a hit from House of Fraser’s collapse into administration.
Shares in the group plunged 30 percent to 400p in early trading after the luxury handbag maker said it was setting aside £3 million to cover the cost of House of Fraser’s troubles.
House of Fraser fell into administration earlier this month and was shortly bought by Sports Direct (LON: SPD) boss, Mike Ashley in a £90 million deal.
The group also said that if current tough UK trading continued into the second half of the year, full-year profits could be “materially reduced”.
“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,” said the group in a statement.
“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.”
“Trading in the rest of the world continues to develop broadly in line with management’s expectations. The group is in a strong cash position and continues to follow its strategy to develop Mulberry into a global luxury brand.”
In the last financial year, Mulberry reported a pretax profit of £6.9 million. This dropped from £7.5 million the year previously following operating costs and startup charges.
Rebecca O’Keeffe, from Interactive Investor, said that shares in Mulberry have lost 50 percent of their value this year.
“There is no doubt that House of Fraser has compounded their problems, but the underlying UK issues are deep-rooted as they struggle against lower footfall and fewer tourists,” she said.
“The company is trying to shift its focus internationally and that is helping to mitigate falls in UK demand, but the sustained problems in the UK can’t be ignored,” she added.
Shares in the group (LON: MUL) are currently trading down 19.58 percent at 457.60 (0955GMT).
