Back to basics at Dawson

The Investment Column

Shareholders in the Pringle sweater group Dawson International have had their patience sorely tested over the past couple of years. In that time, the company has issued two profits warnings and embarked on a failed expansion strategy while the share price slid from 159p last July to a low of 96.5p in early March.

Yesterday's announcement of pounds 24m of exceptional items to clean up the mess is supposed to draw a line under an unhappy episode in the company's fortunes.

After exceptionals, profits at Dawson were just pounds 1.7m in the year to April compared with the pounds 98m loss last time. Sales were more or less static at pounds 328m.

Dawson's key problems centred on its American adventure, where several acquisitions performed poorly, and tinkering with the Pringle brand, where the name was stretched over too wide a range of goods, such as jewellery and perfumes. The company also opened a number of company-operated Pringle shops, anticipating a sales increase that never materialised.

Problems at Pringle were so bad that the business recorded its first loss last year, hindered further by higher costs, lower margins and warmer autumn weather, which damaged sales.

Sir Ronald Miller, chairman, and Nick Kuenssberg, managing director, departed in March with an estimated pounds 300,000 each in compensation. Their replacements, Derek Finlay and George Fairweather, have begun to win City approval for what amounts to a back-to-basics policy.

Dawson Home Fashions, the American shower curtain business, was sold to Spring Industries for $42m yesterday. Ten US manufacturing plants have been closed and six of them are being sold. Premier Fabrics, the UK weaving business, has also gone. The remaining American businesses, JE Morgan thermalwear and Duofold sportswear, have considerable potential.

The Pringle brand is being refocused on golf attire. The company-operated shops have been sold to concentrate on in-store concessions.

There are still problems, however. Dawson is experiencing higher wool and cashmere prices but is struggling to pass the rises on to the price of a sweater. High street trading is still difficult.

The broker UBS is forecasting profits of pounds 27.5m next year and earnings of 11p. That puts the shares, which closed at 119p yesterday, on a forward rating of 10.8. Not demanding, but high enough until Pringle reasserts itself.

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