Sears serves up miserable returns

After a profits warning at its annual meeting in June, investors were braced for a poor set of interim figures from Sears, the sprawling retail conglomerate. But yesterday's figures were even worse than most were predicting, forcing the shares down a further 7.5p to 108.5p. Pre- tax profits fell from pounds 53.8m to pounds 30m for the six months to July. On turnover of pounds 1bn, that is a miserable return on sales of less than 3 per cent.

While Selfridges is doing well, boosted by a pounds 55m refit, many of the other parts of the empire are either treading water or glugging beneath the surface.

Stock problems and the wrong mix of shoes at Dolcis brought profits at British Shoe down from pounds 38m to pounds 2m. Profits at the Freemans catalogue business were static. Sports and leisure, which includes Olympus Sports and Millets, almost trebled losses to pounds 5.8m.

In womenswear, profits of pounds 4m fell to just pounds 300,000 in the period. With more than 400 shops across the Miss Selfridge, Wallis, Warehouse and Richards formats, that is a return of just pounds 900 per shop over six months. Sears would make more money if it put its cash in the bank. Miss Selfridge was the main culprit this time. It stocked too many short skirts and cropped tops for current tastes.

The usual suspects, including weak consumer spending and a hot summer, have been paraded to account for a like-for-like sales plunge of 10 per cent in August and a 1 per cent fall so far in September. But the real problems are less cyclical than structural: too many shops spread over too many formats. Management resources are stretched too thin.

Chief executive Liam Strong is doing the right things at British Shoe, cutting eight formats to four with last month's sale of the Freeman Hardy and Willis chain. The problem is that the new formats are cannibalising the old ones more than expected.

More needs to be done elsewhere. Olympus is a prime candidate for sale, while Millets does not seem to fit. Some argue for a reduction in the number of womenswear formats too, though Mr Strong may baulk at this.

NatWest Securities is forecasting profits of pounds 133m for the full year, a pounds 20m downgrade. With the shares down 7.5p to 108.5p they now stand on a prospective recovery stock rating of 17. They are supported by an above average yield and property backing but the outlook looks dull. Unattractive.