The investment column: Storehouse needs to do more

Storehouse, the Bhs and Mothercare retailer, has taken a terrible pounding in the City in the last year or so. With analysts questioning the group's ability to increase sales, the shares have halved between early 1996 and this summer.

Though they have since staged a recovery of sorts they have still underperformed the market by more than 26 per cent in the last year.

The main problem has been the sales line, and yesterday's half year figures did little to reassure the company's doubters. Though retail profits were up by nearly 8 per cent to pounds 40m in the six months to 11 October, same- store sales were up by just 1.3 per cent at Bhs and at 1.9 per cent at Mothercare.

In current trading, group sales in the five weeks since the end of the half year are ahead by 9.4 per cent on the same period last year on margins that have edged ahead.

That looks fine but when new space is stripped out analysts estimate the underlying growth to be only 1.5-2 per cent. Given the higher depreciation charges and interest costs in the second half, Storehouse will have to do a bit better than that if profits are to be driven forward.

To be fair to management, they are operating in difficult markets. The childrenswear market has been badly affected by the growing popularity of branded sportswear affecting both Mothercare and Bhs. The acquisition of Children's World from Boots last year has given Storehouse an out-of- town alternative. The stores are being converted to the Mothercare World format with pounds 24m earmarked to upgrade 15 of the stores.

At Bhs Storehouse is concentrating on improving product and the store environments but analysts are worried that the move to offering more value lines will take the stores into even more competitive territory.

The City view is that Storehouse will need a very good Christmas to achieve the pounds 127m full year forecasts many have pencilled in. On yesterday's closing price of 235.5p, up 0.5p yesterday, that puts the stock on a lowly rating of less than 11. Cheap, but the company will probably need a couple of good trading statements before a re-rating is achieved. Not worth chasing yet.

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