DIY woes send Boots into slump

Retail turmoil: Do It All undoes the good work at the chemists while a plunge in sales triggers fighting talk from the supermarket battlefield

NIGEL COPE

Boots highlighted the patchy nature of high street spending yesterday when it reported healthy sales growth in its Boots the Chemist chain but disastrous results at its DIY businesses, which are being ravaged by the housing slump.

Sir Michael Angus, chairman, said: "The retail trading environment remains difficult and while the housing market remains depressed we should expect little good news in that area." Boots shares fell 11p to 540p on the results and analysts downgraded their full-year forecasts.

The company also made no specific announcement on its plans for its pounds 410m cash pile. The chief executive, Lord Blyth, said the company was seeking acquisitions in Germany for its healthcare business but if no suitable targets could be found it would not hesitate to return cash to shareholders. Last year Boots returned more than pounds 500m to shareholders.

Boots the Chemists enjoyed strong trading, with like-for-like sales up by 4.5 per cent in the six months to September. The summer heatwave boosted sales of sun creams, which were up 17 per cent. The re-launch of the No 7 brand of cosmetics in February also increased sales.

Boots confirmed its support for resale price maintenance on over-the- counter medicines in spite of the challenge by Asda and the pending Office of Fair Trading inquiry into the system. Lord Blyth said: "We believe that the removal of resale price maintenance would mean a big cut in the number of smaller, independent pharmacies."

He added that far from shying from a fight with the supermarkets Boots was well placed to cope with a price war. He pointed to the battle over perfume prices five years ago when Superdrug cut prices. Boots followed suit and increased sales by 22 per cent and also increased its market share.

Asked why Boots did not support Asda's attack on the resale price maintenance system if it stood to benefit from its abolition, he said: "You have to understand that there are some organisations that don't always behave like a predator."

Although Boots the Chemists performed strongly, lifting operating profits 13 per cent to pounds 163m, the company's other retail business remain under pressure.

The group's share of losses at Do It All, the DIY joint venture with WH Smith, increased from pounds 1.8m to pounds 4.8m. Like-for-like sales also fell 4.5 per cent. The company is still closing stores but struggling to find buyers for its unwanted sites.

The high street decorating chains, Fads and Homestyle, performed even worse, with like-for-like sales slumping more than 13 per cent and losses trebling to pounds 7.6m.

Boots plans to increase investment in its healthcare business by 50 per cent in the second half of the year. This forced analysts to downgrade their full-year profits forecasts by around pounds 20m to pounds 495m.

Group pre-tax profits for the six months to September fell from pounds 290m last year to pounds 228 this time. The fall was largely due to the sale of Boots Pharmaceuticals to BASF of Germany last year for almost pounds 1bn. The company said the final settlement was subject to arbitration.

Investment Column, page 26