Pleasant surprise in Storehouse

Shareholders in Storehouse must be wondering what happened to the ramshackle old company they used to know and curse.

It was only four years ago that the BhS and Mothercare retailer was making pounds 17m in losses, the shares were languishing at 85p and the chief executive's chair seemed to have a built-in ejector seat.

Now, after the departures of Michael Julien and David Dworkin, Keith Edelman looks like he is there for the long haul and the hard work of recent years is starting to reap dividends.

Witness yesterday's better-than-expected results, with pre-tax profits up 46 per cent to pounds 91.2m for the year to April and a dividend up 20 per cent to 3.6p.

The City was chirping over the results, which sent the company's shares up 20p to 263p.

Though Mr Edelman echoed Sir Richard Greenbury's comments about how tough life is on the high street, he has more to feel optimistic about than most.

Both BhS and Mothercare are performing well. Even Blazer, the upmarket menswear chain, turned in a profit for the first time in three years.

Like the Burton group, BhS has been battling to move away from discounting and so far it seems to be working.

Though sales only rose by 1 per cent, operating profits increased by 25 per cent to pounds 70.2m and the margin increased by a similar amount to a respectable 9.3 per cent.

Home and childrenswear are doing well as the stores sharpen their focus on the working woman aged 25-45 and operating on a tight family budget.

Eight new branches of BhS will open during the year, taking the total to 134. The 16 smaller stores, which were re-branded as One Up, were sold earlier this month for pounds 20m.

The real success story at Storehouse is Mothercare. Here, sales are up 9 per cent and profits have climbed from pounds 10m to pounds 17m. A third of the 263 stores have been refurbished, a further 70 stores will be revamped this year and seven new ones will be added.

Like-for-like growth is up 7 per cent and 11 per cent in children's clothing. This is almost into Next territory, the high street's current star turn.

The dark horse of Storehouse business is the international franchise division, which now accounts for 6 per cent of Storehouse's pounds 1.08bn sales.

There are currently 160 branches of BhS and Mothercare overseas in markets such as Spain, the Middle East and Japan.

The Mothercare brand is proving particularly popular in Japan and the company's agent there reckons the market could stand 120 stores.

The problem child is still Blazer. The 28 stores made pounds 300,000 last year compared to break even the year before. The company says it has no plans to sell but may well be tempted if the right offer comes along.

Looking ahead, new stores will start to drive growth at BhS, and there is still room for further improvement at Mothercare, where the return on sales is 5.6 per cent compared to nearly 10 per cent at BhS.

NatWest Securities is forecasting profits of pounds 115m next year and earnings of 18.3p. On a forward rating of 14.3, the shares look attractive.

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