The Investment Column: Mulberry sinks into the red

Mulberry may specialise in designer luggage and fancy soft furnishings but its share-price performance has been very much a cheap and nasty affair. Floated at 153p in autumn 1996, they reached an elegant 214.5p within the first six months but have been sinking like a stone ever since. The bombshell came last month with a profits warning caused by poor Christmas trading and the effects of the strong pound, which has affected tourist spending in London.

The grim tidings were confirmed yesterday with half-year figures showing Mulberry sank further into the red with a pounds 720,000 deficit compared with the previous year's pounds 480,000 loss. The shares gave up a further 5.5p to 64.5p.

The strength of sterling alone has cost the company pounds 2.4m while sales in its accessories division have fallen by 5 per cent. In Japan, the company may have to seek another distributor as its current one has announced financial problems.

Mulberry has cut payroll costs by 10 per cent. A pay freeze for staff and a 12 per cent pay cut for directors will also save further funds. But the outlook does not look too encouraging. Though trading picked up in the last two weeks before Christmas, it was not enough to rescue the figures, which are still running well below budget.

The company has warned that the strong pound will continue to hit profits while the weakness of key European economies is another problem. Mulberry made much of its aim of pounds 50m sales at its flotation but that looks some way off. Without that critical mass, the group's cost structure will make it difficult to get the double-digit margins enjoyed by rivals.

On revised forecasts of pounds 900,000 for this year, the shares trade on a forward rating of 22 falling to 14. Given its poor track record Mulberry still looks too expensive.