Etam wearing its shaky look

Etam's shares have already halved over the past year, so yesterday's 15p fall to 152p was a clear indication of the market's growing concerns about the womenswear manufacturer. Having ditched most of its board and spelled out a four-point "programme for change" it would be tempting to see the company as another retail recovery story. Perhaps - our advice to bargain hunters remains to think twice.

Half-year losses of pounds 3.85m included a one-off pounds 2.98m reorganisation charge but, even stripping it out, there was a pounds 660,000 loss from sales of pounds 107m, compared with last year's pounds 5.5m return from sales of pounds 113m. While the company is focusing on reducing costs and increasing efficiency, the element of the profit equation that really matters - taking shoppers' money - is heading the wrong way fast.

Etam's four-part plan includes establishing a strong management structure, beefing up its tired product lines and improving the appearance of the stores, rationalising the information technology and management reporting systems, and cutting costs. If that sounds a little like rebuilding the whole business, it is.

What worries analysts, however, is that, unlike say Laura Ashley, Etam has never been a particularly badly run business. It is not clear that there is enough scope for variable cost savings to make a serious difference.

The costs that really do need to be reined in are, unfortunately, fixed. Like Ratners, Pentos and Next in its darkest hour in 1991, Etam suffers from a worryingly high ratio of rent to sales, an overhead it can do little to reduce while continuing to trade.

The only way of reducing the ratio is to increase sales. The only way of doing that is to redefine Etam's target audience away from cash-strapped young working girls who have traditionally bought their office clothes from the shop and are now taking their custom to more exciting outlets. Next is back as a serious competitor, as is BhS, which is taking business away and making pricing strategies extremely difficult to judge.

Etam was frank about prospects yesterday. There has been no improvement in trading since the last of this year's string of profits warnings and the signs are that pre-tax profits, pounds 10.2m last year, might be as low as pounds 2m this time. With a sharply cut interim dividend pointing to a big reduction at the full-year stage, the shares don't even have any yield support. Despite their precipitous decline over the past 12 months they have further to fall.