Warning sends Etam into dive

BY NIGEL COPE

Shares in Etam, the troubled fashion retailer, lost 14 per cent of their value yesterday after the company warned on profits for the third time in four months. The shares, which stood at 326p in September, slumped 29p to 177p after the company warned that it would post a trading loss at the half-year stage if sales did not improve from current levels. Analysts now expect a loss of pounds 1m-pounds 2m in the six months to August and have trimmed profit forecasts from pounds 12m to pounds 8m for the year.

In February, Etam said profits would be affected by the warmer winter weather and poor merchandising. At the annual meeting in London yesterday, Stanley Lewis, chairman, said that although there had been an encouraging trend in April it had not been maintained.

He told shareholders that the new management team, led by Nick Hollingworth, a former Evans director, was taking steps to improve merchandise, marketing and information systems. "There is no quick fix solution," he said. "The board is committed to capitalise on the infrastructure of shops and to restore Etam to sustained profit."

The City was not impressed. Sean Eddie, stores analyst at NatWest Securities, said: "Like-for-like sales are down 8 per cent, which is diabolical. There could be more bad news to come as Etam has very high fixed costs including a high rent to sales ratio. Retailing is increasingly polarising, so if you haven't got it right, the downside is enormous."

One of the group's strengths is a net cash balance of pounds 6.8m.

The roots of Etam's problems lie in a decision to move away from its Essex girl image towards a higher fashion merchandise at its Etam, Tammy and Snob chains. But the company has run into a rejuvenated Next, Dorothy Perkins and BhS. Marks & Spencer has also increased its fashion content.

Other retailers, such as Monsoon and Oasis, which is to seek a stock market listing later this year, are ahead of Etam in the fashion stakes. River Island, the privately owned group that used to trade as Chelsea Girl, has also been enjoying improving fortunes.

Sears has been putting extra muscle behind its womenswear chains such as Wallis and Warehouse, where stores have been reformatted and merchandise targeted more accurately.

Etam's core 15-30-year-old target market is shrinking while low price formats such as New Look and Bay Trading are invading its patch. According to Goldman Sachs, Etam's shift towards an older age group with better quality, higher priced merchandise has so far only resulted in it losing old customers faster than it can attract new ones.

One analyst said: "The market is becoming increasingly crowded and Etam's position looks increasingly difficult."

The company has shaken up its management considerably in recent months. Mr Hollingworth joined from the Burton Group in April. In March Stanley Lewis, head of Etam's major shareholder, Oceana Investments, was appointed as chairman. Rodney East, former chief executive, is now executive vice- chairman.