Struggling Mulberry targets £20 million fundraise as sales continue to fall

Mulberry has a grand plan for growth but it needs cash to fulfil it and is planning to raise £20 million. That comes as FY25 sales plummeted and FY26 won’t provide material revenue improvements. In a surprise release on Friday, the luxury leather goods specialist announced that it aims to raise the additional capital “to help fund its growth strategy and to meet the group’s medium-term revenue, profitability and cash generation targets”.

It also said that for FY25 (which ended in March) it expects to report sharply lower revenues and a slightly wider underlying loss before tax.

So first, let’s look at the fundraising and the reasons behind it. The company said CEO Andrea Baldo and the new management team are “currently progressing a transformation plan in order to capitalise on the group’s strengths and return it to profitability”. Medium-term goals for the company are annual revenues of £200 million and and earnings before interest and tax margin of 15%.

To help it get there, its plan involves simplifying and streamlining the company’s operations to reduce the cost base, refreshing the brand platform, “and leveraging creativity and customer insights to deepen connections and drive demand”.

We’re told it’s making “good progress” on delivering this with new wholesale agreements with premium department stores for the UK; expansion in Nordstrom (US) and David Jones (Australia); the launch of a “4 Seasons approach” for product development; a review and exit of some non-profitable stores; and achieving a lower run rate cost base in the current financial year.

But this all costs money and it added that “following a post-FY25 year-end review by the executive management, and in light of an even more challenging trading environment seen at a macro level, the board has concluded that the company will require additional capital to fund its growth strategy and achieve its desired financial targets”.

So where will the money come from? The board notes that majority shareholder Challice will be willing to underwrite the fundraising in full if required. But “believing that the company’s prospects are stronger if both its major shareholders are supportive of the fundraising and noting that any issue of new equity requires the approval of both parties, the board has been engaging with Challice and Frasers Group in order to reach agreement on the final structure and terms of the fundraising”.

Challice controls more than 50% of the firm’s shares while Frasers (which earlier tried to buy the business) controls 37%. The board added that “it may not be possible for all parties to agree fully on the structure of the fundraising, in which case the board, or an independent committee thereof, will conclude on the most appropriate structure for the company”.

Regardless of how it plays out, it should all be complete by next month and the company added that its lender HSBC has “agreed, to relax the minimum liquidity covenant contained within the facilities agreement with the company for an agreed period through to the completion of the fundraising”. Plus the board “believes that the proceeds of the fundraising will provide sufficient capital to enable the company to become cash flow positive”.

That all suggests that there’s been something of a cash crunch at the business and that investment for growth wouldn’t be possible without the new money.

How will it spend the cash?

That investment, we’re told, will include “rebuilding core stocks, including the company’s ‘iconic families’ silhouettes to drive sell-through and momentum; investing in new, margin-accretive revenue streams, such as outlets and the wholesale channel; selective marketing spend, particularly in the company’s core markets of the UK and the US, which will be aligned with profitable growth; and upgrades to existing customer engagement and e-commerce tools”.

As for the trading update, it said that for FY25 it expects to report revenues in the region of £120 million (down from 2024’s £152.8 million) and an underlying loss before tax in the region of £23 million (slightly wider than 2024’s £22.6 million). These results remain subject to audit but that audit process is under way and the full results should be available next month.

It also said that trading in the 11 weeks since the FY25 year end “has been in line with the board’s expectations” and it doesn’t expect “material overall revenue growth in the current financial year”.

Andrea Baldo said of all this: “When I outlined our strategy in January, I set out a clear two-phased approach. In the near term, we are firmly in turnaround mode — focused on rebuilding profitability and gross margin, while strategically investing in brand building initiatives.

“Since then, we’ve taken decisive steps to improve performance and lay the groundwork for sustainable growth. 

“Following our year-end review, the board and I are confident that, with additional funding, we can accelerate momentum and deliver against our targets at pace.”