Investment: Dowdy show at House of Fraser

THINGS DO not look too smart for House of Fraser. The department store group is running hard to stand still in a tough high street trading environment.

It has embarked on a huge restructuring exercise to shed its tweed-and- cardigan image and improve financial returns.

Stores have been jazzed up and new trendy lines have been introduced in an effort to attract younger customers. House of Fraser is also spending more than pounds 20m on an overhaul of its supply chain and distributions systems.

But Ralph Lauren and a new warehouse can do little if the trading environment is against you, as yesterday's interim results show. True, the loss before tax shrunk to pounds 1.8m from pounds 2.5m and margins increased. However, sales were up a pedestrian 2.2 per cent, with turnover in the home division down by more than 2 per cent.

More importantly, management cautioned that sales have slumped in the last two weeks of September and warned that Christmas, when the company makes most of its money, will be anything but a bumper. The shares promptly dropped 2p to 83p, an all-time low.

The main worry is that things could get even worse. If the economic situation deteriorates and consumer spending takes a knock, House of Fraser will suffer more than most of its competitors for two reasons.

First, despite all the recent efforts, the brand name, a key safeguard in times of crisis, is not on a par with other clothes retailers such as Next.

Second, with only 50 stores nationwide, it has a much more limited scope to extract cost-savings than, say, Marks & Spencer.

The shares are undoubtedly bombed out and now trade on a multiple of just nine-times forecast earnings of pounds 30m. But given House of Fraser's gloomy prospects, they should be avoided.