Hamleys' satellite stores take off; The Investment Column

Hamleys' announcement that it is parting company with its chief executive, Geoffrey Cullinan, after just six months took the shine off another cracking set of results from the toyshop group. The departure will scratch the reputation of the chairman, Howard Dyer, a little as yesterday's 7p dip in the shares to 365.5p reflects. But he is undoubtedly right to cut his losses with a manager who, it appears, could not make the transition from consultancy to hands-on management. Whatever lies behind this spat at the top, the original team which has overseen a near- doubling of the share price since flotation in May 1994 remains intact.

In the first six months to 27 July, they have overseen an 18 per cent rise in pre-tax profits to pounds 1.98m. The successful formula being rolled out by Mr Dyer and his colleagues has been to use the famous store in London's Regent Street as a basis for "satellite" operations at main tourist entry points, such as Heathrow's Terminal 4 and the Channel tunnel. It is a strategy belatedly being followed by Liberty, Hamleys' Regent Street neighbour.

The modest 4 per cent growth in sales in the period reflects the absence this time of shipments of "Skyflyers" packs, the children's presents which Hamleys supplies to British Airways for distribution to its passengers. Any problems with this three-year contract appear to be on BA's side and the rest of the business seems to be storming ahead in what is the seasonally weaker half.

The powerhouse remains Regent Street, which accounts for close to three- quarters of group turnover and is highly operationally geared, with operating margins of over 50 per cent. Regent Street raised profits 17 per cent on a sales increase of just 5.5 per cent, shrugging off a 23 per cent rise in rent, terrorist bombs and tube strikes.

The House of Toys chain of toyshop concessions remains a longer-term prospect. The business just about broke-even in the first half, but full- year profits should easily get into six figures. The group is breaking out of its base within House of Fraser stores, with a 4,000-foot John Menzies concession in Edinburgh's Princes Street and another in Arnotts in Dublin after Christmas.

But the real excitement lies in the newer operations. The two satellites opened last year at the Channel tunnel and at Schiphol Airport in Holland saw sales rises of between 23 per cent and 159 per cent. Singapore Airport, a joint venture with a Swiss company, is already going well and a larger franchised store due to start next year in Saudi Arabia could be the prototype for similar stores in the Far East by 1998/99.

With minimal costs for these developments, cash will continue to pile up. Hamleys will look for acquisitions or hand some money back to shareholders. Profits could hit pounds 7.5m this year, to give a prospective p/e of 17. A firm hold.