Life's not so fab at Harvey Nichols

Shares in Harvey Nichols, the "Ab Fab" department store in London's Knightsbridge, were priced so highly when the company floated in April last year that there was always a danger investors would end up looking like fashion victims.

Placed with institutions at 270p, they soared to 334p in the first day's dealings after the issue was 15 times over-subscribed. Given the difficulty most private investors have of getting in on a placing, it was at the higher price that most small punters had to buy.

And buy they did, despite the fact that at those levels the shares were trading on a stratospheric rating of 32 times the previous year's earnings. That rating left no margin for error and many of the well-heeled Sloane Rangers who piled in must wonder whether it was worth the effort.

After peaking at 372p last October, the shares have slid downhill ever since. Yesterday they dipped 16.5p to 286p on news of a slowdown in sales at the flagship Knightsbridge store.

Though profits in the 12 months to 29 March were 30 per cent higher at pounds 12.1m, it was the news on trading in the 10 weeks since the year end which hit the shares.

Like-for-like sales in the Knightsbridge store are just 3 per cent ahead of the same period last year. This was below expectations. The remainder of the 15 per cent increase came from the new store which opened in Leeds last October. Here the news is better. The Leeds store is trading ahead of forecasts, as is the Oxo Tower restaurant on the south bank of the Thames in London, which opened in September.

But the feeling in the City is that Harvey Nicks will need a good second half to reach the pounds 16m profits some analysts are pencilling in for the current year. Even so, now on a more sensible forward rating of 15, the shares look worth holding.