Shares believes this is an opportune moment to buy British luxury brand Mulberry (MUL:AIM) following a pullback to £10.23 per share. The fashion bags-to-footwear retailer’s turnaround is gaining traction, currency movements give some overseas tourists more purchasing power in the UK, while recent M&A activity highlights the attractions of strong luxury brands.

MULLING OVER MULBERRY

Investing on takeover hopes alone is foolish and we’re mindful of Challice Limited’s dominant 56.2% stake in Mulberry, yet its turnaround under CEO Thierry Andretta is gaining traction. Full year results (14 Jun) to 31 March revealed a 21% pre-tax profit surge to £7.5m on sales up 8% to £168.1m, with retail sales including digital up 5% on a like-for-like basis.

The English design company did report softer trading entering the new financial year. It flagged modest 1% retail like-for-like sales growth for the 10 weeks to 3 June, though this was against a tough comparative and delivered in a seasonally quiet period.

Mulberry has successfully re-focused on its core ‘relatively’ affordable £500-to-£995 pricing point. New products launched under the creative direction of Johnny Coca, including the bestselling Zipped Bayswater bag, are gaining momentum.

The £638.6m cap closed the year with £21.1m cash in the coffers and no debt, giving it the firepower to grow its core leather goods business and stretch the brand into footwear, accessories and jewellery.

GOING FOR GROWTH

Barclays analysts argue Mulberry is unique among listed peers in being immature in global luxury markets outside the UK. This quality that could make it attractive as a takeover target, so long as earnings continue to recover.

Footwear brand Jimmy Choo’s (CHOO) £896m takeover by US handbags brand Michael Kors at a significant premium demonstrates the strategic attraction of luxury brands, while Coach has snapped up handbags rival Kate Spade & Co for $2.4bn, luxury groups coming together in defensive mergers that bring scale.

For the year to March 2018, Barclays sees Mulberry generating adjusted pre-tax profits of £9m, improving to £10m in 2019, with a flat 5p dividend shaded in for both years. These forecasts could prove conservative if Mulberry’s global growth moves pay off.

Not only has Mulberry established a majority-owned entity, Mulberry Asia, with Challice to operate the business in China, Hong Kong and Taiwan, it has also formed a new 50:50 joint venture with Onward Global Fashion (OGF) to operate its business in Japan.

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