GUS blames falling clothes sales for third profits warning

GREAT UNIVERSAL Stores, Britain's largest home shopping company, issued its third profits warning in three years yesterday blaming falling sales of clothing through its major catalogues.

GUS shares fell 20 per cent to 340.5p, their lowest level since early 1993, as analysts cut their full year profit forecasts. Several expressed concerns about the future of the group's declining "big book" catalogue business.

Sales at GUS home shopping division, which includes the Kays catalogue, fell by 7 per cent in the six months to September as shoppers defected to cheaper high street rivals like Matalan and New Look. Profits at the division sank by 70 per cent to just pounds 14.5m due to other issues such as rising bad debts and distribution problems. "These are all signs of a business in disarray," one analyst said.

Analysts were also unconvinced by the recovery plan outlined by Lord Wolfson, GUS' chairman, and his apparent dismissal of City fears. "What was alarming was the sense of contempt for investors and analyst concerns," one said. "He skimmed over the presentation and didn't treat questions with the respect they deserved."

The comments came as GUS reported a 12 per cent fall in half year pre- tax profits to pounds 176m, if exceptional charges are excluded. But current trading is worse with GUS's home shopping business struggling against a weak retail market which is being hit by pre-Christmas discounting.

GUS said the tough trading conditions meant it would not meet market expectations of pounds 500m pre-tax profit for the full year. Analysts have downgraded to pounds 420m-pounds 450m instead.

Lord Wolfson admitted that GUS's catalogue prices had been too high. He said the catalogue's historic attraction of easy access to credit for cash-strapped shoppers had been eroded by the increasing availability of credit cards. "Our price levels are not as attractive as they should be," he said.

Lord Wolfson said GUS' prices would need to come down by around 10 per cent and that costs would have to cut. "Home shopping might need to operate profitably at a lower level of sales," he said.

GUS is also hoping to balance falling sales in its traditional agency business with higher sales through Argos Additions, a new catalogue being introduced in the Argos stores which were acquired via a pounds 1.9bn hostile takeover 18 months ago. Prices in these catalogues have been "unbundled" to strip out the credit offer and are up to 25 per cent cheaper.

GUS claimed it was now in a position to take advantage of e-commerce opportunities. It has registered the domain name bringme.com as a possible prelude to offering third party distribution services to Internet retailers.

Lord Wolfson admitted that GUS "probably has been a bit slow to recognise these opportunities". Analysts said that the new chief executive, John Peace, who takes the position in January, will have his work cut out to restore shareholder value. Mr Peace said there were no current plans to de-merge the Experian financial information business before 2001 when it would have a three-year trading record.

GUS also said it had no current plans to sell its Burberry luxury goods business which is still recovering from the impact of the Asian crisis.

GUS group sales rose by 4 per cent to pounds 2.5bn at the half year stage. Experian increased profits by 15 per cent to pounds 95m. Argos profits rose 8 per cent to pounds 31m.

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