NEW YORK, Oct 27, 2001/ --- It's been a rough road for Arcadia lately, but things may be looking up. The second-largest British clothing retailer has announced pre-tax profit of about $76 million for the year ended August 25, a huge jump from its $12 million loss last year.

Halfway through yesterday's presentation to analysts, however, Arcadia Chief Executive Stuart Rose received a note and jetted off as soon as the meeting was over. He returned shortly with more big news: Iceland's largest retailer Baugur is considering a takeover bid.

Discussions have just begun, and Arcadia cautions that, "there can be no certainty that any offer will result." Observers started speculating about a possible Baugur bid back in May though when the Icelandic company built up its stake in Arcadia to 20.1 percent.

Baugur Chief Jon Johannesson said at the time that "for the next six months we are not planning to increase the stake [from 20.1 percent] but you never know what could happen in the months after that."

Baugur already has the license to operate Top Shop and other Arcadia brands throughout Iceland and Scandinavia.

Many insiders attribute Arcadia's recent profit turnaround to new chief Rose, who joined the company from Iceland (the frozen food chain, not the country) late last year.

Earlier this month Rose announced that Arcadia would be selling four of its chains of fashion stores as "an important step in achieving our key goal of rationalizing the business portfolio and simplifying the business." Racing Green, Hawkshead, Warehouse and Principles will be purchased by management buyout team Rubicon Retail Ltd in a $51 million deal that should be final no later than August 31, 2002.