Retail News Update

People still think of Laura Ashley as a clothing retailer but this is far from the truth. Less than one fifth of the company’s sales now come from clothing, with the vast bulk coming from furniture, home accessories and wallpaper.

It is the retailer’s exposure to the homeware sector that led to an uninspiring like-for-like sales figure when the company released its full year results yesterday. Like-for-like sales fell by 8.7pc over the year to the end of January and have continued at a similarly depressed level into the new financial year. As John Lewis and Marks & Spencer have already said, furniture sales are very soft at the moment.

However, despite this, Laura Ashley managed to report a 62pc leap in pretax profits due to margin improvements and strong sales growth from stores that have been open for less than a year.

The retailer, which is controlled by Malaysia’s MUI Group, was also able to double its total dividend to 2p.

We think that the shares – trading at 23p – are worth picking up. Not only are they well down from last summer’s five-year high of 30p, but there should be more growth to come.

There is also the chance that Laura Ashley could pounce on a rival. The chain has been slowly building a stake in Moss Bros, the troubled menswear retailer. It was keeping silent about its intentions yesterday but observers think it could make a bid.

For its growth prospects, ungeared balance sheet, strong cash generation and possible role as a sector consolidator, we think the shares are a buy.