Mulberry profits-warning sends shares plunging

British luxury handbag maker Mulberry on Tuesday warned that its annual profits would fall this year amid Asia's economic slowdown, lower sales and higher costs, sending the sector's shares tumbling. Mulberry's update followed a similar shock profits-warning by British rival Burberry last month, which together highlighted the tailing off of strong demand for luxury clothing amid weaker growth in China, according to analysts. Mulberry on Tuesday said it was experiencing a "more challenging external environment in Asia, resulting in cautious ordering by franchise partners," adding however that the business "continues to be strongly profitable." It also said in an earnings statement: "Primarily due to lower wholesale revenue, Mulberry now expects group revenue growth for the year to 31 March 2013 to be below market expectations. "As a result of this, combined with the previously highlighted investment being made in international retail expansion, we now expect full year profits to be below last year." In reaction, Mulberry shares nosedived as low as 925 pence. It later clawed back ground to stand at 1,063 pence, down 19.47 percent from Monday's closing level. The top-end retailer said overall sales advanced six percent in the first half of its financial year, despite the tough trading conditions. Revenues rose to £76.5 million ($122.4 million, 93.9 million euros) in the six months to September, compared with the same part of last year. "Mulberry's core UK retail business and key wholesale accounts continue to perform well in the context of a more challenging external environment," the group's chief executive Bruno Guillon said in the statement. "Although international retail sales are behind expectations, newly opened stores are performing satisfactorily." Mulberry's gloomy profits warning rocked the European luxury goods sector on Tuesday. Shares in Burberry declined by 3.41 percent to 1,132 pence. Burberry's own share price had tumbled in September after issuing a shock warning that analysts blamed on China's economic slowdown. Burberry earlier this month reassured investors that demand had not fallen off a cliff as sales growth slowed during its second quarter. In Paris on Tuesday, shares in fashion groups LVMH and PPR slid by 2.24 and 2.09 percent respectively, to stand at 122.30 and 131.05 euros ahead of the close of trading. Italy's Luxottica Group, which produces Oakley and Ray-Ban sunglasses as well as eyewear for Chanel and Prada, saw its share price drop 1.65 percent to 16.52 euros in Milan. But Mulberry was by far the biggest faller. "Mulberry shares dropped as much as 35 percent during the session after warning on profits, cutting earnings guidance and painting a nasty outlook for the luxury brands sector," noted ETX Capital trader Ishaq Siddiqi. "The results underpinned the slowdown in China hitting the bottom line and the squeeze on consumer wallets around the world, all of which do not bode well for PPR and Luxottica." He added: "Both luxury brand companies report earnings this week and if LVMH and Mulberry are anything to go by, we anticipate a dire set of figures."