Two of the UKs top luxury brand names issued trading updates today, and the two fashion houses reported completely different performances.
Home-grownMulberry Group (LSE: MUL) is proud of its British roots, but the company has made several mistakes over the past few years that are still holding back performance. For example, a few years ago Mulberrys management decided that the group should raise prices and go upmarket, which alienated the companyscore customer base.
This mistake has continued to drag on performance. Indeed, during thesix months ended 30 September, Mulberrys retail sales fell by 9% to 45.1m, with UK full price sales falling by 12% and outlet sales slumping 23%.Wholesale sales also collapsed by 31% during the first half as customers continued to shun the Mulberry brand.
Fall from grace
Mulberry used to be a darling of the AIMmarket. The companys shares traded as high as 2,400p during 2012 but a string of profit warnings, coupled with high expectations, have sent the companys shares plunging by 74% over the past two years. And it seems as if the company is going to continue to struggle going forward.
Within todays trading update, the company warned that wholesale sales are not expected to return to growth until 2015/2016. Additionally, while some new brand designs are getting a good reception from customers, footfall in stores is declining overall.
All in all then, Mulberrys outlook is pretty dismal but even after todays slump, the companys shares still trade at a sky-high forward P/E of 44 a high valuation that does not leave much room for error.
Upbeat update
Meanwhile, Mulberrys larger peerBurberry (LSE: BRBY) issued a relatively upbeat trading update today. Specifically, the company reported a 7% increase in sales, or 14% on an underlying basis.
Unfortunately, the company continues to feel the effect of a strong pound, which has crimped growth and is expected to reduce reported full-year profit by about 25m. Whats more, management believes that a strong pound will reduce the groups full year adjusted operating margin from 17.5% to around 17%.
Room to grow
In comparison to Mulberry, Burberry looks to be a much better pick. For example, as the companys underlying sales continue to tick higher, the shares are trading at an undemanding forward P/E of 18. Current City estimates predict that the company is trading at a 2015 P/E of 16.8.
That being said, as mentioned above Burberry is facing currency headwinds, which will impact the companys growth. Still, the companys underlying sales continue to increase at a double-digit rate and a strongpoundis out ofmanagements control. So, on that basis the company remains a good defensive investment as consumers continue to support, and seek out the Burberry brand.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has recommended Burberry. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
