Bottom Line: Promises met will keep MFI a leader

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The Independent Online
CONSUMERS in the 1990s may not be willing to spend that much, but they certainly know where they want to spend it.

Take Burton Group. Even 'lower mark-ups' - lower prices in layman's language - could not persuade them to shop in Top Shop, Dorothy Perkins or the rest of the Burton multiples. But Next, forced to get its act together rather earlier, tempted shoppers to part with 18 per cent more of their cash.

In food retailing, a beleaguered Tesco was rewarded for getting closer to its customers with an 11 per cent sales increase, but William Low, which was perhaps too late to react to the discount threat, struggled to get 3.5 per cent.

Virtually every trading statement over Christmas has warned of pressure on margins - Burton's gross has slipped 1.5 percentage points. Unless volume increases to compensate for the price pressure, or productivity improves, profits can only go one way.

For MFI the one way was up. True, its huge retail sheds and manufacturing overheads mean that it is more operationally geared than other retailers, but the 41 per cent rise in operating profits on a 5.5 per cent sales increase shows it knows that the 1990s will be as much about cutting costs as increasing sales.

On the latter, the 14 per cent increase in turnover in the January sales augurs well, although given its patchy trading history it is unsurprising that the shares refused to get excited, climbing just 5p to 179p.

Analysts, however, are convinced that MFI will remain among the leaders, with some pencilling in as much as pounds 75m this year and pounds 100m next. That puts the shares on a demanding 21.8 times this year's earnings, falling to about 16 next. That may be justified if its promise is fulfilled, but woe betide it if there are any setbacks.