First profits fall at GUS in 48 years
Friday 06 December 1996
GUS's shares dropped 25.5p to 651.5p on news of the decline and a gloomy current trading statement which said conditions in the home shopping division "continue to be difficult".
However, analysts in the City turned their attentions towards possible mail order acquisitions under new GUS chairman Lord Wolfson, who also heads Next.
Lord Wolfson said GUS would be interested in buying Freemans, Britain's third-largest mail order company recently put up for sale by Sears. But he indicated such a deal might fall foul of the competition authorities because of GUS's leading position in the UK mail order market.
"Clearly GUS would have to say they were interested in the possibility of buying a mail order company in the UK. We certainly believe the market is going to consolidate," he said.
Lord Wolfson said he was keen to develop direct catalogues to balance the group's traditional mail order business which is conducted via huge catalogues and an army of 3.7 million agents. He said: "We believe that over the next 10 years there will be a trend towards smaller catalogues with relatively narrow product ranges. They will not just be niche catalogues but aspirational."
He cited successful examples in the US such as LL Bean, J Crew and Eddie Bauer and said GUS would like to develop a similar business, either from scratch, through a franchise arrangement, or by acquisition. "We are looking at the route to enter that market but we are not going to get there overnight. We will take the long-term view."
However, it is understood the company was the under-bidder for Innovations, the catalogue group acquired earlier this year by Burton.
GUS's pre-tax profits fell 0.7 per cent to pounds 235.7m in the six months to 30 September. Profits at the UK mail order division fell nearly 20 per cent to pounds 44m due to a decline in service levels and a high churn rate among its agents.
The company is improving its distribution and warehousing systems as well as reducing the number of under-performing agents. GUS is now operating with 250,000 fewer agents than it did last year and is aiming to improve its customer retention and average order size.
"The bubble certainly burst today," said Mees Pierson analyst Nick Bubb. "It didn't make for happy reading but I am intrigued by the emphasis on possible acquisitions."
Mr Bubb said GUS might try to negotiate with the competition authorities ahead of a bid for Freemans asking them to view the deal as part of the wider retail sector, not just mail order.
Elsewhere, GUS' Burberry's & Scotch House division saw a modest increase in profits with sales in the UK affected by the rise in sterling which has made goods more expensive for Japanese customers.
At CCN Information systems, which will link up with Experian of the US after last month's pounds 1bn deal, profits rose from pounds 10m to pounds 12.6m in the half.
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