Boots property shuffle could be costly

Boots; Ebookers.-com; Lok'nStore
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The Independent Online
Rumours are beginning to seep out from Boots' headquarters, ahead of the group's full-year results on 31 May. The latest word is that Britain's biggest chemist is conducting a strategic review of its property portfolio, and has identified a number of its 1,400 stores that no longer fit its profile

Rumours are beginning to seep out from Boots' headquarters, ahead of the group's full-year results on 31 May. The latest word is that Britain's biggest chemist is conducting a strategic review of its property portfolio, and has identified a number of its 1,400 stores that no longer fit its profile.

Although the company would neither confirm or deny the speculation yesterday, disposing of unwanted space to a retailer such as J Sainsbury would make sense as the group withdraws from selling CDs, books and homeware to refocus on pharmacy, health-and-beauty and services, including Boots the Optician, dentistry and chiropody. The two types of store that are likely to emerge from the revamp are prime sites, offering the full range of Boots products and services, and smaller stores, stocking the core Boots range and acting as local pharmacies and health-and-beauty convenience stores.

The concern is that selling off some of its mid-scale stores, or unwanted areas within them, may not be enough. Boots may also need to relocate some shops to more suitably-sized premises, and the cost of a large-scale property reshuffle should not be underestimated. At the same time, the group is having to invest heavily in its core health and beauty business, as well as new developments such as Wellbeing, a £25m internet and cable joint venture with Granada Media. Boots is also committed to cutting £100m of costs next year, with a further £160m by 2003.

At a time when the company's sales and margins continue to come under pressure from rivals such as Wal-Mart's Asda, all eyes will be on Steve Russell, chief executive, and his team to unveil some value-creating measures alongside the full-year results. Pulling out of underperforming operations, such as the company's international retail division, could prove a long-winded process. Meanwhile, no obvious buyer has emerged to swallow Boots' non-core assets, notably Halfords, the bicycle and car parts chain.

Analysts are forecasting full-year pre-tax profits of £582m and earnings of 46.9p. That puts the shares, down 11.5p at 617.5p yesterday, on a forward multiple of 13.17. Based on a sum-of-parts valuation, that looks undemanding. But there appears to be no short-term escape route from the current strategic impasse. Avoid.



Ebookers.-com



It is a week since Europe's biggest online travel firm, Ebookers.-com, listed on the London Stock Exchange. Since then, the shares have soared more than 50 per cent from the issue price of 99.5p. Yesterday, they closed up 23.5p at 150p. The take-off came after the company said it was on track to reach profitability by its previously-stated target of the end of this year, or the beginning of next.

Dinesh Dhamija, the chief executive, said the break-even point will be achieved through a combination of revenue growth and cost-cutting. The group has a cash balance of $43.8m (£30m) at its disposal. The comments came as Ebookers reported a pre-tax loss of $11.9m in the first quarter ended 31 March. Consolidated sales reached $48.7m in the period, 35 per cent higher than the previous quarter, and 96 per cent higher than Q1 in 2000. Gross margins also improved, from 12.2 per cent to 13 per cent year-on-year, as Ebookers moves towards more automated back-end services. Mr Dhamija said he hopes to halve the company's burn rate from $3m a month to less than $1.5m in the second half of the current year.

Ebookers, which is now present in 11 countries, did not spell out exactly what proportion of its sales growth came from acquisitions, such as last year's $15m purchase of Flightbookers, its bricks and mortar parent. But the group claimed to have registered strong gains across its ongoing operations, including a 66 per cent jump in organic growth in the UK. Meanwhile, the recent all-share acquisition of MrJet, a Scandinavian rival, is progressing well. Mr Dhamija has stated that he wants to buy another two or three companies to plug geographic gaps, such as Italy, and to expand under-represented strategic areas, such as business travel.

Looking ahead, Ebookers looks relatively cushioned against the threat of a recession. It does not sell directly to American customers, while the group's low-cost, negotiated flights might become more attractive in a downturn to travellers who would normally shell out the published fares.

The challenge will be to sustain the growth momentum into 2002 so that the group will report its first full-year profit. Analysts are forecasting full-year revenues of $230m and a pre-tax loss of $31.7m. The company is currently valued at 0.44 times forecast sales. The shares should have further to go.



Lok'nStore



Unlike some other Eastern traditions, the Zen notion that we should forgo worldly goods has not had much impact in Britain. The success of the Aim-listed Lok'nStore, which allows customers to squirrel away possessions in huge warehouse containers, bears witness to this.

Lok'nStore has successfully exploited the fast-growing warehouse storage market. Yesterday, Lok'nStore reported a 41 per cent jump in turnover to £1.91m and pre-tax profit of £127,457 for the six months to 31 January. Profit was down on last year's level, causing the company's shares to slip 1p to 191p. But the decline was mainly due to the company's decision to plough increased earnings into buying warehouses. The centres do not make a profit until they are about 95 per cent full, and Lok'nStore's average is considerably below that.The forward price earnings ratio of 76 reflects the expectation that profits will not filter back to investors for a couple of years. But the shares are worth tucking away.

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