Boots set to cheer market

BOOTS is likely to reassure the City, made nervous by weak recent interim results from other retailers, on Thursday when it announces its profits for the six months to 30 September, writes Peter Koenig.

The average forecast of analysts polled by Bloomberg News is for earnings of 19.7p, up 2.1 per cent from 19.3p the year before. Analysts' forecasts for pre-tax profits range from pounds 248m to pounds 266m, compared with pounds 253.4m the year before.

"Like every retailer, growth has slowed quite considerably in the second quarter," said Roy Maconochie, an analyst at Henderson Crosthwaite. "I think the margins are coming under a bit of pressure as growth slows."

In contrast to other retailers, however, the company has no plans to cut capital spending, according to insiders. Boots, which operates Boots the Chemists, optician stores, and the Halfords auto-parts chain, has announced a five-year 100-store expansion of Halfords.

It is going ahead with the rollout of 40 stores in Thailand planned before the Asian financial crisis. It is opening its first store in Japan next summer. And it is experimenting with offering dentistry and chiropody in its shops.

Last month, the company secured its position as the leading UK retailer in the Irish Republic when it announced plans to open new stores across Ireland and increase its Irish payroll from 600 to 1,000.

The company's shares have fallen just 3 per cent in the past six months while general retail stocks on the FT-SE 350 have dropped 15 per cent.

"The thinking is that people are still going to buy pharmaceuticals and other health-care products even if the downturn depresses overall consumer spending," said a second analyst.

In September last year, the company launched a loyalty card to reward regular customers. Analysts say the benefits of this have yet to come through. While eating into margins, the loyalty card has made no clear difference to sales. "It does seem they are not getting the incremental sales they expected from the loyalty card," Mr Maconochie added.

Still, Boots is striking a confident pose.

"The theme is they're moving ahead on all fronts," said an industry observer. "But there is likely to be a cost attached to the various initiatives."