Bottom Line: A nice line in operational gearing

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TIE RACK is a classic example of how 'operational gearing' - that phrase trotted out to justify the sky-high share rating of the most deadbeat retailer - can actually deliver the goods. Strangle your costs, and you only need a modest lift in sales to deliver a monster hike in profits.

Tie Rack has done just that. By freezing prices and giving customers greater variety - 800 new tie designs and 400 new scarf designs in the past year - it has lifted total sales by 23 per cent and like-for-like sales by 6 per cent.

Costs are well under control. Its smaller stores are no bigger than a domestic bathroom. Yet some, notably airport shops, produce sales per square foot of more than pounds 2,000 a year, colossal by high-street standards.

Even after yesterday's 10p price increase to 126p, the shares are trading on a modest multiple of 13.7 times this year's expected earnings.

That 10 per cent discount to the market is partly because of the fate of other niche retailers like Sock Shop, partly because Tie Rack has made bad mistakes in the past: it lost a fortune expanding aggressively in the US and through the bad debts of failed UK franchisees.

It may also be because image-conscious City folk, who still tend to favour expensive Hermes numbers or old school ties, have not yet fully cottoned on to the value and quality of a pounds 9.99 job from Tie Rack. The shares certainly have further to go.

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