Selfridges lights the profits gloom for Sears

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Profits at Sears all but disappeared in the first half as the sprawling retail conglomerate took a pounds 25m provision against exposure to shoe shops sold to Stephen Hinchliffe's failed Facia group.

Apart from Selfridges, the flagship London department store, all of Sears' divisions reported lower profits.

Including the Facia provisions, pre-tax profits slumped to pounds 2.5m in the six months to July against pounds 29.9m last time.

The City, however, seemed prepared to give Liam Strong, Sears' beleaguered chief executive, the benefit of the doubt and the shares held steady at 97p.

"He's given himself some breathing space," said Sean Eddie, a NatWest retail analyst. "The jury remains out but this is the end of the downgrade cycle and therefore the position of Mr Strong is easier."

Mr Strong faced calls for his resignation from angry shareholders in June over the lack of progress at Sears and the sale of the Freeman Hardy Willis, Saxone and Curtess shoe chains to Facia, which collapsed that month.

But yesterday Sir Bob Reid, Sears' chairman, reiterated his backing for Mr Strong. "Institutional investors see the business has a clear picture of where it is going. I don't see any absence of support."

Sears said that, of the 379 stores taken back from Facia, 149 had been sold, 85 were under offer and 145 were still for sale.

Sears set aside pounds 32.5m to cover the cost of property disposals and debts owed to Sears by Facia. The charge was partly offset by the release of pounds 7.5m in provisions held over from the previous year, making a net new provision of pounds 25.0m.

Mr Strong said the administration under Price Waterhouse of the remaining shoe shops was going according to plan and he remained confident that total provisions of pounds 73.8m for Facia would be enough to cover residual exposures.

Excluding provisions, Sears' pre-tax profits rose 4 per cent to pounds 28m on sales from continuing businesses of pounds 843m, up 8 per cent. The 1.05p interim dividend was maintained.

Gains in women's fashion and Selfridges were overshadowed by poor trading in home shopping and shoes. Footwear sales fell almost 5 per cent in the first half and profits slid to pounds 600,000 from pounds 2m. The Facia debacle hampered Mr Strong's efforts to ditch parts of British Shoe division, which involved selling 500 outlets and 400 concessions. The most recent deal was the sale of Hush Puppies last month to Stylo, another footwear retailer, for pounds 19m.

Sales from ongoing businesses, which include Dolcis, Shoe Express and Shoe City, rose by almost 14 per cent to pounds 182m.

But Mr Strong said the reorganisation was now complete and the group could now start making progress.

Freemans, the mail order business, saw sales fall 6.5 per cent to pounds 237m but there has been some recovery so far in the second half.

Sears has struggled to streamline its stores to revive profits but radical pruning over the past four years since Mr Strong became chief executive has been slow to restore growth.