The Investment Column: A bargain in Storehouse

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The Independent Online
AT STOREHOUSE, the Bhs and Mothercare retailer, it is a case of new results, old problem. Pre-tax profits edged up 5.7 per cent to pounds 125m but the City is still fretting about the lack of sales growth and wondering whether the margin improvements are sustainable.

Total sales rose by nearly 7 per cent but like-for-like growth was just 2.2 per cent at Bhs and 1.8 per cent at Mothercare. Margins improved at Bhs but Mothercare improvement in the second half did not offset the first- half decline caused by mark-downs.

Storehouse has been concentrating for a long time now on stabilising its margins and making sure it gets its prices right first time and is not forced into heavy price cutting in the sales. Management has done well on this issue but with significant investments being made in areas like systems, the City feels Storehouse will have to grow both sales and margins if it is not to suffer a setback.

The worry is that Storehouse has had a short-term boost from the closure of 19 Littlewoods stores as new owner Marks & Spencer undertakes refurbishment work. When those stores re-open under the Marks name, Storehouse may come under further pressure. Storehouse chief executive Keith Edelman says Littlewoods' decision to pull out of childrenswear and home products may counter that move, but the City is not convinced

Moving into sportswear, with some exclusive ranges by Pony and others, will help provide exposure to the branded sports boom but the decision may have come a bit late, with that market now seemingly coming off the boil. Perhaps Bhs will hit the jackpot instead with its lightweight combat gear popularised by the girl band All Saints, but that could turn out to be more of a passing fad than a trend.

After a grim year last year, Storehouse has enjoyed a mini-revival in share price terms and they improved another 12.5p to 256p yesterday. On full-year forecasts of pounds 132m, the shares trade on a forward rating of 12. This is cheap but though there may be room for a small further rise, the shares are not worth chasing much further.