Arcadia shares surge as City bets on revival of fortunes as Rose returns

* <i>NEWS ANALYSIS </i>Too many formats and too little profit. There are no quick fixes for the troubled retail group

ARCADIA, THE embattled Top Shop to Burtons retail group, received a rare pat on the back from the City yesterday.

ARCADIA, THE embattled Top Shop to Burtons retail group, received a rare pat on the back from the City yesterday.

Confirmation that the company's chief executive, John Hoerner, had been replaced with immediate effect by Stuart Rose, the chief executive of Iceland, sent shares in the company up 8p to 59p, their highest level since January.

For Mr Rose, the wheel has turned full circle. A former Burtons director himself, he lost out on one of the top jobs when Arcadia was created three years ago through the demerger of the Debenhams department store group.

Investors are now hoping his return will bring about a sustained turnaround at Arcadia, which has seen its sales and profits plunge since 1997. One fund manager said: "People will be hoping that he works his magic at Arcadia ... [The share surge] reflects the expectation that someone like Stuart Rose can solve the obvious problems that the company has."

But what are the options for a business that in three years has seen its market value plummet by 80 per cent to £97m? And is Mr Rose - who enjoyed brief but profitable stints at Argos, the catalogue shops chain, and Booker, the cash and carry group - really the man to lead a recovery?

Bryan Roberts, an analyst at Retail Intelligence, says: "It's a tall order. But [Mr Rose] did have a good record at Burtons and later Booker."

After the Debenhams demerger and the formation of the new Arcadia, Mr Rose had high hopes of becoming chief executive but was passed over in favour of Mr Hoerner.

Since then, he has played a series of canny career moves. He netted £500,000 for just two months' work when he joined Argos in the middle of its unsuccessful attempt to fend off a hostile takeover bid from Great Universal Stores. He subsequently picked up a further £2.2m when Iceland's £325m takeover of Booker triggered his share options and long-term incentives plans.

Referring to the time he has spent away from high street retailing, Mr Rose said: "To be honest, people think I've been around a bit in recent years. But I spent 17 or 18 years at Marks & Spencer and eight or nine years at Burton. I have been out doing a couple of other jobs since then but now I have come back to my roots in textile retailing."

Speaking at his customary machine-gun speed, Mr Rose said that whilst at Booker, he gained experience of nursing corporate recoveries, which could be applied to his new role at Arcadia. "In 1998, Booker was a bit of a basket case. It had a high level of debt and sluggish sales." After two years of hard work to "put the company back on the map", he sold the business to Iceland.

Asked whether he had ambitions to groom Arcadia for a similar sale, Mr Rose said he had "no plans at the moment", adding that "anything is a possibility". He said he would take time to "absorb" the changes that have occurred in the retail market since he left the business three-and-a-half years ago before taking any major strategic decisions.

Mike Godliman, of Verdict Research, said Mr Rose's main challenge would be to streamline and rejuvenate Arcadia's portfolio.

He said: "The problem is [Arcadia] has got too many brands appealing to the same customer base. They are cannibalising their own sales." This is a long-standing criticism of Arcadia but one that it has ignored.

Indeed, in 1999, it added to its plethora of competing brands with the £150m purchase of the former womenswear operations of Sears, including Warehouse, Miss Selfridge and Evans.

Mr Godliman said Mr Rose's first task should be to review the brands to make sure each format was aimed at a distinct sector of the market. He said the units that are most in need of attention are Burtons, the menswear chain and Evans, the group of stores which is aimed at older, larger woman.

"It is unlikely that, in five years time, all the Arcadia brands will be the same ... I think we are going to see a lot of changes to this business," he said.

To some extent, this process of paring down Arcadia's bulging portfolio has already begun.

In April, the group announced a radical shake-up, codenamed BrandMax, including plans to close a quarter of its shops, cut 3,500 jobs and dramatically reduce its menswear operation.

The biggest casualties were the loss-making Principles for Men and Richards chains, which are in the process of closing down completely.

Burton and Top Man are also being scaled back, while there have been store closures at some womenswear chains, such as Principles and Miss Selfridge.

In October, the company went further, unveiling plans to shut a further 55 shops as it reported a full-year loss of £8.5m before tax and exceptional items, compared with a pre-tax profit of £41.8m the previous year. One analyst said: "In lots of ways, the hard work has already been started by Mr Hoerner.

"Really, the conditions have been in place since the interims for this stock to be re-rated."

There was evidence to support this optimism yesterday, as confirmation of the management reshuffle was accompanied by news that Arcadia's performance in the latest three weeks of the current financial year were "in line" with the first seven, when like-for-like sales increased by 4.8 per cent.

Nick Bubb, an analyst at SG Securities, said Mr Rose could just have struck it lucky again: "Even his talents would have been stretched by the challenges of the market over the last three years .... He could be lucky enough to have joined just as the market is starting to improve."

Retail Intelligence's Mr Roberts said: "I think we should soon see the business improving and posting better results. Let's face it - things can't get much worse."