Millstone round Upton's neck

The Investment Column

Shareholders in Upton & Southern, the north of England department store group, must rue the day their company alighted upon the Reject Shop.

Since Upton acquired the unfortunately named furniture and housewares group in March last year, the company has become embroiled in legal action with Reject Shop's former directors over the purchase and mounted a rescue rights issue - while the shares have slumped from 65p to yesterday's 3.75p.

Yesterday the picture was not looking much rosier. Results for the six months to January show group losses of £987,000 before tax on sales of £20.7m. The Reject Shop remains a millstone around the group's neck.

Losses at the chain reached £1m in the six months on sales of £15.8m and the tide of red ink is expected to continue into the second half. Three stores have been closed and two have been re-opened under the slightly more upmarket but smaller RJ's Homeshop format.

Upton's chairman and chief executive, Ron Trenter - who joined last month from Texas Homecare - describes the business as "in intensive care".

It must now perform radical surgery. Costs will be cut, loss-making stores may be closed or re-branded as RJ's. The group's warehousing and distribution methods will also be reviewed and the introduction of electronic point of sale systems - initiated only last week - should improve cost control.

Current trading is 20 per cent ahead of last year, but the performance is patchy across the 31 stores and most of the gains are coming from lower- margin furniture sales.

A gambler might say that Upton has now left the worst behind it, with scope now to recover. But the shares must remain only for the brave.