Bottom Line: Dowdy Dawson

DAWSON International, the textiles company, is looking dowdy. Its North American operation - mostly supplying cut- price retailers with unbranded clothes - is in difficulty. And it looks as if it could get worse before it gets better.

At first sight the figures for the year to 27 March are good. Pre-tax profits were lifted 38 per cent from pounds 23.2m to pounds 32.1m. Most of that increase is due to the adoption of the new accounting standard FRS3 which depressed comparative figures by pounds 7m. Earnings per share were 13.3p (11.5p). The dividend was held at 9p.

A better picture is painted by trading profits, which across the group as a whole grew 4 per cent to pounds 37.2m. Sales split more or less evenly between the UK and North America. But operating profits in Britain are more than double operating profits over there. In the year to last March North American operating profits slumped from pounds 18.5m to pounds 11.8m.

Dawson's problems in America are huge. It is caught in a fierce price war among retailers Wallmart and K-Mart, which are biting off large chunks from Dawson's profit margin. The Scottish-based company is also hit by overcapacity among North American manufacturers and is not helped by cheap imports.

In addition, retailers are eager to reduce inventories with the result that Dawson had to increase stocks, which meant there was a small net outflow of cash. Dawson says it is addressing its US problems. But as yet there is little evidence of progress.

Overall figures were saved by a good performance in branded clothes, with Ballantyne and Pringle among its best known labels. But here too there is a question mark as Continental European and Japanese markets are weak.

The shares fell 6p to 215p. They have underperformed the market and the textiles sector over one, three and five years. Profits and earnings are unlikely to go far this year putting the shares on a prospective multiple of 15.9 times. Sell.