Investment Column: House of Fraser improves its act

House of Fraser has been such a dismal performer since its flotation in 1994 that there was a feeling of relief yesterday that the department store group finally managed to deliver a set of results with no nasty surprises.

It may be too early to be sure of a sustained recovery from this company which has disappointed so often in the past.

But at least it looks as if the chairman, Brian McGowan, who offered to fall on his sword if there were any further slips, will not have to impale himself just yet.

True, the group made a pre-exceptional loss of pounds 2.5m in the first half, but that was a considerable improvement on the pounds 8.7m recorded in the same half last year.

A sales uplift of 3.8 per cent in the half and 5 per cent in current trading isn't bad, though it is not clear how much of this has come from the offloading of cut-price stock.

House of Fraser says its priority is to increase margins rather than drive sales and here the news was reasonably encouraging.

The gross margin rose by nearly a full percentage point. This was boosted by better sales of higher-margin own-bought ranges as opposed to the concessions on which House of Fraser always relied in the past.

Sales of the Linea range of own-label clothing, launched in late July, have exceeded the company's most optimistic expectations and should boost margins further. There remains much to be done, of course.

The remaining third of the "off strategy" stock which has troubled the company for so long will be offloaded by the end of the year, using up more of last year's chunky provisions. There are two unwanted stores in Eastbourne and Sheffield which the company hopes to sell but may have to close.

Staff turnover, which has been as high as 50 per cent in the stores and 40 per cent at head office, is falling, which should improve customer service.

And a store efficiency programme, which was completed for non-selling functions in March, will deliver cost savings of pounds 10m a year.

The shares, floated at 180p, closed 1.5p higher at 216.5p yesterday and on UBS's full-year profit forecast of pounds 27.8m they trade on a forward rating of 25. Too racy to make the shares worth chasing.