Coleman gets the House in order; The Investment Column

One of the luxuries of taking on a basket case is being able to slag off your predecessors with impunity. John Coleman, new chief executive of House of Fraser, took the opportunity with alacrity yesterday and painted a bleak picture of unparalleled retailing incompetence. It was little wonder the shares closed 4.5p lower at 158p, 24p below the price at which the business was floated almost three years ago.

The figures for the six months to July pretty much told the tale, even without Mr Coleman's embellishments. Gross profit of pounds 102.3m on sales of pounds 334.7m was wiped out by operating expenses. The closure of a single store, with its attendant property write-offs, cost another pounds 6.7m and pounds 4.4m of bank interest completed the depressing countdown to a pounds 13.6m pre-tax loss compared with a pounds 4.3m deficit last year.

Mr Coleman added some colour to those bald figures. Profits have been sliding since flotation, market share is being handed over to John Lewis and Debenhams and the proportion of higher-margin own-bought sales (as opposed to concessions) is in sharp decline. In summary, the new boss related, prior to his arrival House of Fraser had been failing its customers with poor service and merchandise, had little idea who its target market was, was a poor buyer, had poor stock control and inadequate distribution.

If you are a shareholder you might feel somewhat aggrieved that the picture painted yesterday bore no relation to the bright scene used to sell you your stake in 1994. You have been had, by the company and its advisers, and if it were not for the considerable asset backing supporting the shares, the situation might be rather worse.

That is history, however, and the flip-side of new chief executives clearing the decks is that they tend to paint an unduly black picture to make their progress look that much more impressive. Of more concern is Mr Coleman's strategy and whether it will work.

He has strengthened the management team with four new directors, he has done detailed research to find out who shops at the stores and how better to serve them and he has launched the first advertising campaign for three years not to focus on price discounts. Coming soon is a review of the cost base, the creation of buying briefs and a study of which of the 50 stores are unlikely to produce a decent return.

All good stuff. But the benefits will take time to show through. Mr Coleman admits there might not be tangible evidence of improvement for a couple of years and in the meantime BZW's forecast of pounds 16.5m profits, before a one-off hit of pounds 50m to cover the rationalisation, puts the shares on a punchy p/e ratio of 33. Asset backing of maybe 120p and bid hopes might sustain the shares but they have no fundamental attractions. Sell.