Home shopping group Dream Direct has reduced annual losses from £721,000 to £297,000 and sees an 'operating profit' this year.

AIM-quoted Dream increased revenue seven per cent to £16 million in the year to March and achieved a £516,000 operating profit in the second six months. The compan – which sells catalogue brands on the themes of nostalgia, leisure and entertainment to the over-50s through press and media advertising, e-mails and web sites – blames its 'disappointing' results on stock shortages, caused by inadequate working capital.

These shortages caused delivery delays, upset customers and, says Dream, knocked £500,000 off the bottom line. Since the year end, sales for April and May were seven per cent down on the year before, because of `a 'planned reduction' in spending on winning new customers.

However, the company launched 'Razamataz', a classic TV and films brand, which achieved £3.9 million sales in its first year, increased its active customer base 21 per cent and raised the proportion of new customers recruited online from nine to 12 per cent. In May, Dream raised £882,000 before expenses in a placing to existing and new shareholders and is about to launch its first 'Big Book' catalogue of 164 pages.

Chief executive Robert Colquhon says the steps the company has taken will 'significantly improve the quality of our offer'. He adds 'the board is confident the group's maiden operating profit [not pre-tax profit] will be achieved in 2006/07.'

Floated at 88p four years ago, Dream Direct's shares hit 150.5p last year before plunging to 31.5p lately. They have rallied 3p to 34.5p today, valuing the company at £4 million, and might rally further on signs the company's remedial actions are working.