The Investment Column: Five years on, Burton looks smarter

Anyone who thinks corporate turn-arounds are quick-hit affairs should take a look at Burton. It is now nearly five years since John Hoerner moved up to the chief executive's slot and cleared out the last vestiges of the unlamented Halpern-era management. Yet it is only last year that for the first time "in living memory" all the businesses moved back into profit. Even then the figures were still not desperately impressive, with only two divisions lifting trading margins through 10 per cent.

That said, pre-tax profits raised 54 per cent to pounds 152m are not to be sneezed at and Burton is now well and truly out of the recovery ward. Indeed, after four years when sales have hovered around the pounds 1.8bn to pounds 1.9bn mark, last year's 7 per cent rise through the pounds 2bn barrier for the first time looks set to mark the start of an expansion phase.

The group still offers plenty of scope for growth. Despite the turnround from loss, the Burton Menswear chain is still producing a pitiful pounds 3.3m trading profit on pounds 227m of sales. That is some pounds 500,000 less than Principles, a format aimed at the same 25 to upper 40s age range, but with sales of only a little over half those of Burton. Management has done well to move away from what at one stage seemed to be a chain characterised by permanent sales, but the dowdy image is still clearly dissuading people from going into the stores.

Much reduced discounting and supply chain initiatives are starting to bite across the group, with trading margins advancing smartly from 5.4 per cent to 8.1 per cent last year.

But there is clearly plenty to go for, as the further 1.1 percentage point gross margin improvement in the first nine weeks of the current year demonstrates.

Meanwhile, Burton is playing to its strengths with stepped-up expansion plans concentrating on Debenhams. The department store chain remains the power-house of the group, with profits rocketing through pounds 100m for the first time after a 21 per cent rise last year. Plans to raise space by a fifth in the next four years will absorb a chunk of a capital programme of around pounds 200m in 1996-97, nearly double the level of two years ago.

Longer-term, mail order and electronic retailing hold promise. Burton has paid full prices for the acquisition earlier in the year of Innovations and Racing Green. But it believes that its plans to have all its brands in catalogues over the next two years should be largely self-financing from now on, even if it may be three to four years before there are significant returns.

If Burton manages profits of pounds 190m this year, the shares, up 0.5p at 145.5p, stand on a forward multiple of 15. With sales currently nearly 8 per cent ahead and a consumer boom in prospect, they still look reasonable value.