View from City Road: Storehouse freed from its chains

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The Independent Online
THE UNBUNDLING of Storehouse is almost complete. The Richards chain has gone. So has Habitat in Britain and France. The loss-making American arm of Habitat will be sold or shut down within months. There should be no trouble finding a buyer for the popular Blazer shops. Storehouse will then be reduced to two chains, BhS and Mothercare. The ill-fated plan of seven years ago to build a portfolio of high street chains under the umbrella of a design-led parent will be finally laid to rest. And good riddance to a pretty flaky idea.

The disposals give Storehouse a net cash boost of pounds 100m. There will be an extraordinary charge of about pounds 30m and a pounds 20m reduction in shareholders' funds. The modest borrowings disappear, replaced by a pounds 50m cash pile to be invested in the surviving businesses, which are focused reasonably clearly on young families.

BhS is already in increasingly good shape. Mothercare is not. David Dworkin, the Storehouse chief executive, is well aware of the incompetence that has plagued Mothercare. To quote him yesterday: 'No focus; tons of people doing tons of things; always out of basic product; not using systems properly; a questionable supply base; stores not properly modernised . . .' and so on. It remains an enormous challenge.

A new management team under Ann Iverson is in place. The first new store - a more theatrical format complete with talking trees - has opened in Watford, with encouraging results. It is already one of Mothercare's top 10 stores.

The Mothercare brand, though badly neglected in recent years, can probably recover - it made trading profits of pounds 25m a year at its peak. It will climb out of the red in the first half with like-for-like sales up more than 10 per cent.

BhS has already turned the corner. Again first-half sales growth is in double digits. Mr Dworkin has identified 40 catchment areas where new stores could be opened. There is also no less than 1 million square feet of fallow backroom space in the existing chain that could be converted into selling space.

The City likes what it sees, marking the shares 3p higher to 164p yesterday. After exceptionals Storehouse should make pounds 15m and 2.6p of earnings this year, rising to pounds 60m and 9.9p next year - a prospective multiple of 16.5 times.

We said in May that of the walking- wounded trio of Storehouse, Sears and Burton, Storehouse looks the best bet. We stand by that. Switch accordingly.

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