Tie Rack shares at five-year low as it warns on profits

Tie Rack shocked the City yesterday when it warned that profits had fallen sharply in 1997, sending its shares tumbling 27 per cent to a five-year low of 90.5p. Andrew Yates reflects on a troubled year for the retailer and on growing concerns about its future.

Tie Rack's profits have been decimated by the damaging effects of the strong pound and the economic crisis that has spread like wildfire throughout the Far East. With nearly two-thirds of its shops now located outside Britain the rise in sterling has battered revenues and margins.

The number of tourists flying into Britain and visiting London has also collapsed as Asia's financial problems worsen, which led to disappointing sales at the tie retailer in the run-up to Christmas. To make matters worse the group blamed winter weather for poor sales of scarves and gloves.

Tie Rack admitted yesterday that the problems mean 1997 pre-tax profits fell well short of the pounds 8.8m the group made in the previous year. Analysts rushed to get out the red ink. NatWest Markets slashed its forecast by pounds 3.8m to pounds 5m.

Roy Bishko, Tie Rack's founder and chairman, said yesterday: "We have had a bad year. But we will try and steer this ship in a sensible direction and we are still in pretty good shape."

The warning has shaken the City's confidence in the group. Joan D'Olier, retail analyst at NatWest, said: "This is a shock. I am nervous that we could discover more nasties ... and after this latest scare I am wary of the shares."

Tie Rack's shares have fallen from a peak of 203.5p last year. They are now trading well below the 145p a share the group floated at in 1987. City observers believe that the slump in the share price has made the group more vulnerable to a takeover.

However, Mr Bishko claimed he still had the full backing of Vadep, the institution which holds 37 per cent of the shares. "I love running this company and I have no intention of giving up its independence," he said.

Tie Rack's problems have forced it to slow down its store-opening programme, especially in Europe. It is also considering launching an advertising and marketing campaign in an effort to restore sales.