GUS will take some waking up

The Investment Column

When Lord Wolfson of Sunningdale took the helm at Great Universal Stores from his cousin last September, he was charged with reawakening the sleeping catalogue giant. That is easier said than done. Pre-tax profits, ignoring exceptional VAT refunds, fell 2 per cent to pounds 549.1m in the year to March. To be fair, the strength of the pound more than accounted for this slump, wiping nearly pounds 22m off the bottom line. But that cannot disguise the fact that home shopping profits tumbled from pounds 187m to pounds 158m.

GUS's core agency catalogue business is in sad decline. Its customers are being lured by the plethora of out-of-town stores springing up all around the country. Retail chains such as Next are also rapidly expanding their own mail order businesses. Wolfson admits GUS was guilty of neglecting service by cutting costs to the bone and is now splashing out on more staff to remedy the problem, but agency profits look set to fall further.

Consequently GUS has decided to cut out the middle man or woman and develop a direct mail order business, using its extensive database to target customers and then send appropriate catalogues straight to their homes. But the initiative is only in its early stages and will not be a major contributor for some years. At least Experian and Direct Marketing Technology, its two new US acquisitions which provide customer information for credit card and retail companies, should boost earnings in the current year.

The shares fell 41.5p to 623.5p yesterday as analysts rushed to slash current year profit forecasts on home shopping fears. Estimates had ranged from around pounds 600m to pounds 625m, but the broker SGST is now looking for profits of pounds 575m, before any further tax credits, putting the shares on a prospective multiple of 16. That still looks a full rating, even after the sharp fall in the share price.