Customers keep the faith: Despite a 7m pounds US loss there is optimism at Laura Ashley, writes Patrick Hosking

SIR Bernard Ashley, the chairman and 50 per cent shareholder of Laura Ashley Holdings, the fabrics to fashion retailer, has not attended a board meeting since last May. The widower of the company's eponymous founder divides his time between his Bahamas-based yacht and the US state of Virginia, where he is building a hotel and golf course designed by Arnold Palmer.

Sir Bernard's apparent neglect of the company might raise an eyebrow or two on the Cadbury Committee on Corporate Governance. But it is not untypical of a company that - eight years after its flotation - continues to find the transition from private family business to publicly quoted company a painful affair.

This is the company that managed to run up debts of pounds 107m and gearing of 122 per cent in 1989 before being rescued by the Aeon group of Japan, which took a 15 per cent stake; the company that was then forced to close seven factories and shed 1,500 staff in order to survive; the company that in 1990/91 went without a chief executive for an embarrassing 13 months.

Yesterday it unleashed another shock, reporting that its important US arm had plunged to a loss of pounds 6.9m in the year to 30 January. A fiasco in stock control and merchandise allocation was to blame. The US staff did not know how to use the computerised stock allocation and replenishment system. The same product mix was allotted to Hicksville as to Fifth Avenue. The 192 US stores spent most of last summer trying to track down the lines their customers actually wanted: in June alone there were 110,000 stock swaps between shops. For more than 60 days they could not order anything.

As a result, the group made pre-tax profits of just pounds 1.8m, roughly a quarter of expectations 12 months ago. Operating profits slumped from pounds 3.1m to pounds 1.1m. The dividend was held at a nominal 0.1p. However, because of an pounds 11.7m exceptional item last time, the company was able to point to a pounds 10.9m improvement from losses of pounds 9.1m.

Jim Maxmin, the American-born chief executive drafted in from Thorn-EMI 18 months ago, portrayed the results as a triumph: 'This is the first profit the company has had for three years. It's a milestone for the company. I couldn't be more pleased.'

Outside North America, he has a good story to tell. Operating profits in the UK and Ireland rocketed from pounds 1.4m to pounds 5.6m. The Continental contribution rose from pounds 900,000 to pounds 2.6m. Gross margins have been restored without much damage to sales. And in the new financial year there have been some strong sales improvements. Garment sales in the UK are 30 per cent up on 12 months ago; home furnishings are 9 per cent higher. The Continent has also recorded strong sales improvements.

Borrowings quadrupled from pounds 4m to pounds 16m last year, but this still represents gearing of less than 20 per cent. Andrew Higginson, the finance director, expects the group to be cash-positive in the current year despite capital spending of pounds 11m- pounds 12m.

There are other grounds for optimism. The novel alliance with Federal Express, which is handling distribution, seems to be working well. The aim is to cut delivery time from Wales to anywhere in the world to a maximum of 48 hours. Experiments with new store layouts are also yielding encouraging sales improvements.

Mr Maxmin's unusual blend of sheer enthusiasm for the brand and business school jargon has won some converts in the City, which marked the shares up 1p to 84p yesterday. Kimlan Cook, a stores analyst with NatWest Securities and a one-time bear of the stock, turned neutral six months ago and yesterday switched to a buy recommendation. 'The tide is turning. The management is in more control than it has ever been. This latest disaster in the US is probably the last major skeleton in the closet.'

But the US is likely to haunt the group for a while yet. Mr Maxmin says poor US sales in February were because of a decision not to promote home furnishings. In March the blizzards were to blame. Since then trading has been ahead of last year without much need for discounting. America, which has been the undoing of so many British retailers, would break even by the second half of the current year, he predicted. It had been profitable before, making up to dollars 20m in a good year, and would be again.

It is 40 years since the late Laura Ashley first put pen to paper on the kitchen table of a flat in Pimlico, London. Despite the logistical disasters, shoppers appear to love the brand as much as ever. The company is planning a 40th birthday celebration in the stores on 5 May. As Mr Maxmin points out, it is neither the banks nor the management that have saved Laura Ashley, but the extraordinary loyalty of the customers.

Meanwhile, he and his team continue to steer the group towards being a more normal public company. Sir Bernard, 66, wants to reduce the family holding to 20-30 per cent eventually. His duties are now usually performed by the deputy chairman, Hugh Blakeway Webb.

If Mr Maxmin delivers on his promises this year, few will object to this curious boardroom arrangement. If not, shareholders will doubtless demand a more hands-on chairman.

(Photographs omitted)