Pressure grows for shake-up at Fraser

Fourth profits warning in two years leaves institutions fretful over store group's future
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NIGEL COPE

Pressure is growing for senior management changes at House of Fraser, the department store group run by Brian McGowan, a high-flyer in the Eighties, after the company issued its fourth profits warning in two years.

City analysts and institutional shareholders are expressing disenchantment over the company's performance since the Army & Navy and Dickins & Jones group was launched on the stock market to much fanfare two years ago.

Institutional investors are understood to have requested meetings with the company to learn why trading problems have persisted.

One shareholder said: "House of Fraser is not a hopeless case but at the trading level things do not look good. They don't seem to have control over their stock."

Another investor said yesterday's statement "raised questions about the management." Mr McGowan was brought in to chair the company and oversee its flotation. Andrew Jennings, the managing director, moved across from Harrods.

The company declined to comment on possible management changes. The fund management group PDFM, which owns a 22 per cent stake in the company, also declined to comment. Talk of a possible takeover has started, although most analyts say the company is not attractive at the current price.

Yesterday's trading statement said that this year profits would be well below market expectations after a significant fall in the operating margins.

The City was expecting pre-tax profits of around pounds 25m for the year to January but this was downgraded yesterday to pounds 16m-pounds 18m. The company blamed the problems on changes in its sales mix, saying higher-margin ladieswear and homeware departments had been particularly disappointing, with sales down by 4-5 per cent. The company has been forced to discount stock to clear space for new ranges while slow-moving new stock has also been marked down aggressively.

Trading in the week before Christmas was strong, with comparative sales up 8.5 per cent on last year. However, sales for the 22 weeks to the end of December were up by only 2.3 per cent.

The company said it was addressing the problems with the recent appointment of a new merchandising director. It also plans to invest pounds 5m in new technology as part of a three-year programme that will see store refurbishments and new stores in the coming year.

House of Fraser shares were priced at 180p when they were issued in April 1994. After early gains to more than 200p they have fallen steadily following a series of profit warnings. Yesterday they closed 3p lower at 163p.

Some institutions say the company could become a takeover target, although the current share price is too high to attract serious interest. Sears, which owns the Selfridges department store, and Burton, which controls the highly successful Debenhams chain, could both be interested at a lower price.

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