Investment: Arcadia leads the pack now

Investment: Arcadia leads the pack now

IN HIS spare time Arcadia's chief executive, John Hoerner, sits on the committee of Battersea Dogs Home. When the clothing retailer was spun off from Burton in January, some said that experience in dealing with stray dogs ideally qualified him to be boss.

On trading performance, however, Arcadia has emerged as the leader of the pack. The 18.1 per cent profits increase to pounds 81.1m in the year to the end of August is about as good a performance as you will see in this current round of retail sector results. Sales rose by 7.6 per cent to pounds 1.45bn, and the dividend increased by 17 per cent to 11.7p.

Sales density - Arcadia's version of like-for-like sales - rose a handy 6.5 per cent. All the brands improved, from Principles and Burton through to Dorothy Perkins, Top Shop and Evans.

Home shopping and Internet sales grew nicely, albeit from a very small base. Talks are already under way about an interactive shopping channel. Arcadia says that although sales overall this year are slowing, it's doing better than the competition.

But the snag - and it's a big one - is that Arcadia is the most operationally geared of all the clothing retailers. Rents, mostly short-term leases, account for about 9 per cent of total costs. Four per cent is the norm for the sector, leaving Arcadia as the most exposed of the clothing store chains to a slowdown.

Analysts forecast pre-tax profits of pounds 89m for 1998/99 and pounds 96m for the year after. That gives forward earnings multiples of nine falling to eight on a share price of 272.5p, down 7.5p, yesterday and 46 per cent below its January peak.

This is admittedly a low rating, but with the full impact of a consumer slowdown still really to emerge, it is justified. High enough.