The shares soared to over 370p - putting them on a ridiculous rating of almost 40 times earnings - before deflating as investors started to worry about the group's expansion plans. When they fall, go-go stocks fall hard.
Yesterday's news of just 3 per cent sales growth in the first nine weeks of the second half, sent Harvey Nicks' share price crashing 23.5p to 193p. Though the group refuses to split out the relative contributions of its two shops, growth at its flagship Knightsbridge store appears to be slowing. The strong pound put off overseas shoppers, which account for around a fifth of its sales.
That together with a general lull in trading as a result of uncertainties during the general election and the death of Princess Diana, led to the company to slash prices of some summer stock lines by almost half to clear the backlog.
There is likely to be more discounting this January given the mild autumn, great for shoppers but not for margins, already under pressure from higher investment in the new Leeds store. True some of that should be offset by continuing strong contribution from the higher margin Oxo Tower restaurant division and better profits from Leeds as the product mix improves.
However, when Harvey Nicks goes ahead with its second store opening, probably in Newcastle or Edinburgh, costs will rise again. Broker UBS forecasts pounds 13.5m profits for the full year. A rating of 12 times may look cheap compared to a market on 17 times, but is reasonable for the sector. Hold.Reuse content