Flat performance from House of Fraser lifts bid speculation

Hopes of a takeover bid for House of Fraser from Tom Hunter, the Scottish retail entrepreneur, underpinned the department store's share price yesterday after the company said like-for-like sales in the run up to Christmas rose just 0.1 per cent.

The group's flat sales performance heightened speculation that Mr Hunter was readying a bid for the company he has been stalking for a year.

He already owns 11 per cent of House of Fraser and could mount a bid in concert with Baugur, the Icelandic retail group that owns 8 per cent.

Mr Hunter met Baugur in December for talks ostensibly about a property joint venture but his trip to Iceland fuelled rumours of a bid. He refused to comment yesterday on the retail group's trading statement or on the possibility of making an offer.

The trading update revealed that sales during the 23 weeks to 3 January rose a marginal 0.1 per cent. The company also reported that like-for-like sales for the 49 weeks of its financial year so far were flat while total turnover was down 2.5 per cent, largely due to the closure of three stores. Mr Hunter has retained NM Rothschild to weigh up possible takeover opportunities for his West Coast Capital vehicle and House of Fraser's performance yesterday is unlikely to have deterred him from examining a possible bid in more detail.

Last year he was rebuffed in making an 85p-a-share approach. The shares closed up a penny at 88p last night.

The trading update disappointed some analysts after the company had revealed in September that the first seven weeks of its second-half trading period had seen like-for-like sales up 5 per cent.

Analysts expect House of Fraser to deliver pre-tax profits for this year of £26.5m on a turnover of about £1.1bn. John Coleman, the House of Fraser chief executive, refused to comment on profit expectations but defended his company's returns on sales.

"Remember we floated with £100m of debt with a property portfolio that has to pay rent. We do not have freehold properties like retailers such as Selfridges. When you add back the rent and interest payments we have to pay because of our balance sheet structure you find that we have an operating return not vastly different from other retailers." Mr Coleman also denied that House of Fraser's new store in the City of London was underperforming. "The City has done fantastically well and is in line with our expectations. It had a great Christmas."

He said the £200m of capital expenditure the company had made over the past five years was necessary to stop profits going backwards at the group.

A bright spot in the trading update, Mr Coleman said, was the company's record on cost savings, which are now expected to exceed £13m, well ahead of the £10m previously indicated.