The Investment Column: A catalogue of problems at GUS

Great Universal Stores has been slowly attempting to shed its image as the slumbering giant of the retailing sector. Last year it forked out some of its prodigious cash pile on a pounds 302m special dividend to shareholders. Then in December, the share price was electrified by the announcement that Lord Wolfson of Sunningdale, one of the two men credited with transforming the fortunes of Next, would in September take over as GUS chairman from his cousin, Lord Wolfson of Marylebone.

Sadly, however, these signs of dynamism at board level were belied by yesterday's figures for the year to March. Pre-tax profits up 3 per cent to pounds 581m were at the upper end of the range indicated at the time of a profits warning in May, but stripping out one-offs the performance was pretty flat.

GUS's discomfort was increased by signs that it is failing to cash in on the current revival in high street spending. Its warning that sales and profits have been level in the three months since March contrasted sharply with the 8.6 per cent like-for-like sales increase for the same period reported by Marks & Spencer yesterday. GUS's shares duly sank 35p to 637p.

The main problem lies in the huge mail order division, which includes the Great Universal, Kays and Marshall Ward brands. Profits sank from pounds 251m to pounds 236m, hit by a stock write-off on clothing, which knocked half a percentage point off margins. GUS does not seem to have been able to shift its womenswear ranges last summer and was at a loss to explain its failure, apart from the rather limp excuse of the hot weather at the time.

The real root of GUS's difficulties lies in the overcapacity which plagues the traditional agency catalogue business in the UK. The group's 38 per cent share gives it a leading position, but the market is flat or declining and monopoly considerations mean GUS cannot acquire any of its four big rivals. It has been seeking for some time to spend some of its pounds 1.1bn cash mountain on a big Continental mail order business, such as La Redoute of France, but has been rebuffed so far.

All this is not to say that Lord Wolfson the younger faces a lost cause. So-called direct mail order, which avoids agents, is still booming. Eight per cent of GUS's business comes this way via Marshall Ward and a new brand is being contemplated.

GUS also has some decent businesses tucked away. The General Guarantee Corporation, a provider of motor finance, raised its loan book by pounds 100m to pounds 1bn last year, while profits rose by a fifth. There was similar growth at the CCN credit card processor and marketing services provider, continuing a three to four-year record.

Stripped of exceptionals, profits could just top pounds 600m in the current year, putting the shares on a forward multiple of 16. The new chairman will have to work hard to justify that rating, but he knows the business well. Worth holding on for the ride.