GUS checks out of Burberry

HIGH Street retailer to business services group Great Universal Stores surprised the City this morning with plans to demerge Burberry, the clothing chain in which it holds a 66% stake.

A £1bn-plus windfall from the deal failed to placate GUS investors with the shares failing 28½p to 860p in early trading. Burberry shares were down 9p at 370p.

The group, which also owns DIY retailer Homebase and catalogue store Argos, had been expected to sell off Experian, its credit rating and business services unit. But GUS said today that although separation in the future would happen it believed that the business will benefit from further investment and support as part of the group.

Burberry, which yesterday reported a 21% rise in annual profits and 10% increase in sales, will be demerged later this year. GUS said it will consolidate its shares at the same time though it gave few details.

Last week GUS raised £142m through the sale of its remaining 50% stake in Lewis Group, the South African retail business. News of a further break-up at GUS will go down well in the City.

Many pundits believe a break-up of the group, with Experian, the business services unit, sold or demerged, is the best way to deliver shareholder value. Earlier this month GUS beefed-up Experian, spending up to $380m on Californian-based website business LowerMyBills.com.

Chairman Sir Victor Blank said that a strategic review had concluded that there was no strategic logic in keeping Argos Retail Group, Experian and Burberry together under the same corporate roof. He said that precise timing of the Burberry demerger would be announced in due course.

Blank was talking after GUS unveiled record profits at all three businesses, but group pre-tax profit was little changed at £693m after exceptional charges. These included a £16.2m hit to cover a fine on Argos by the Office of Fair Trading two years ago after finding that the company had worked with Littlewoods to fix the prices of toys and games.

In April the Competition Appeal Tribunal ruled that the penalties imposed on the companies were fair and proportionate. Today, however, GUS confirmed that it is seeking leave to appeal against the ruling which it described as an 'unfair decision'.

Although headline profits were up at Argos, the retail business reported its first fall in underlying quarterly sales for six years back in April, starkly illustrating the downturn in UK consumer spending. The company said it is extending the store chain to more than 750 over the next four years.

The Argos Extra format is being rolled out as well. Argos extra has over 4,000 more product lines than the main Argos catalogue's 13,300 lines. The roll-out of Argos Extra is expected to add 2%-3% to sales in the first full year as consumers become more aware of the extended ranges.