Bottom Line: Hopes gone for a Burton

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STARRY-EYED investors who had pushed Burton Group's shares up by 50 per cent relative to the market over the past year in the expectation of a dramatic turnaround at the group's Top Shop, Principles and Dorothy Perkins chains took swift revenge yesterday, marking the shares down 10.75p to 66.25p.

Having powered to an pounds 18.5m profit in the first half, the 1,700- odd stores in the multiples division suffered a sharp setback in the second, with losses of pounds 11.2m leaving the result for the full year only marginally ahead.

That is bad news. Burton's heady rating relies heavily on John Hoerner, chief executive, being able to work the same magic in the multiple chain as he did at Debenhams.

While there is undoubtedly room for improvement in the 6.8 per cent margins achieved there, the 82 per cent rise in its profits to pounds 57.7m on sales just 10.5 per cent ahead suggests the best of Debenhams' recovery has been seen.

Significant profits growth in the future will depend on Burton achieving a decent return on the pounds 850m sales generated by the rest of the group.

Burton has plenty of excuses for the multiples' 4.6 per cent sales decline in the second half. A good summer in 1992 meant that the comparative figures were demanding, while stocking fewer lines has lost the stores some customers.

The group says that refurbishing stores, complete with new fascias, is tempting shoppers in and yielding sales increases more than 10 per cent ahead of the rest. But, given that the programme means closing them for up to four weeks and has only really started this year, the group will have to work hard to push sales ahead.

Only a third of the chain will be refurbished this year, which means the group will still be operating with more than 1,000 outdated shops in a year's time.

The bears believe that Burton's reluctance to comment on whether the improvement in gross margins enjoyed in the second half has continued means they will fall in the current year. The sluggish start - sales are 1 per cent down, albeit recovering in the past month or so - means turnover could be flat.

The most pessimistic analysts translate that into profits of pounds 55m compared with earlier estimates of up to pounds 70m, putting the shares on a prospective multiple of about 24, a 40 per cent premium to the sector. Until there is more evidence that the multiples formula is working, the shares should be sold.