Mulberry has revealed that it is braced for a £3m hit from the collapse of House of Fraser in which it operates 21 concessions; an announcement which had led to a slump in its share price this morning.
The British luxury brand said it was preparing for the exceptional cost to be reflected in its six-month results to 30 September 2018. Mulberry’s debt with House of Fraser was reported as £2.4m in the administrator’s report, but the business said that cost would rise to £3m “following a review of debtor balances, fixed assets and potential costs that may result from restructuring.”
In a trading update published today, Mulberry also said UK trading as a whole remained “challenging”. “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,” it said.
The news sent its share price tumbling and, at the time of writing, shares had dropped by more than 26% to 420p per share.
Mulberry has been focusing in recent years on expanding its international business, particularly in Asia, and has formed new subsidiaries to lead its expansion in China, Japan, Hong Kong, Taiwan and most recently South Korea.
The full extent of the debts of House of Fraser were revealed on Friday in a report from administrator Ernst & Young, with suppliers owed almost £500m. Other big name fashion brands to have taken huge hits include Polo Ralph Lauren (£9.4m), Kurt Geiger (£4.8m), Phase Eight (£3.4m), Barbour (£3m), All Saints (£1.8m) and Giorgio Armani (£1.6m).
House of Fraser was briefly placed into administration to enable its sale, in a pre-pack deal, to retail tycoon and Sports Direct and Flannels owner Mike Ashley for £90m. Much of the sale price will go to House of Fraser’s bankers and bondholders with suppliers expected to receive just 2-3p in the pound for their debts. Ashley is not legally obliged to pay debts racked up by the previous owners but he has been urged to pay some suppliers to ensure positive on-going relationships.
One of the biggest creditors is logistics firm XPO, which is owed £30m. The business operates two warehouses for House of Fraser and downed tools after the administration forcing the department store to take its website offline last week and cancel all outstanding e-commerce orders. As of this morning the website remains closed for business, though it contains a redirect to Ashley’s luxury fashion business Flannels.