Boots' medicine working as sales rise

Campaign to stick to core strengths paying off. Analysts raise profit forecasts after Q4 figures
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The Independent Online

Boots, the high street chemist once regarded as deeply troubled, signalled its continuing recovery yesterday with sales figures that pleased the City.

Its chief executive Richard Baker heralded the results of his campaign to "put the chemist back into Boots" with sales that were up 3.3 per cent in the fourth quarter.

As a sign of its success in sticking to core strengths, Boots said it will dispense its 100 millionth prescription in the year to April this Friday. It will be the first time Boots has passed the 100 million mark.

Despite various attempts to reinvent itself, Boots is still seen as the best place to fulfil prescriptions for everything from contraceptives to cold cures.

The company also bragged about the success of its "Change One Thing" initiative. Boots says 500,000 people have tried to keep a new year's resolution to quit smoking via its stores.

Customers sign up for a course of treatment that includes nicotine patches and regular counselling - which has become a highly lucrative field. In some areas, the treatment is sponsored by the NHS.

City analysts expect Boots to make about £385m in profit for the year - a figure that some upped yesterday after studying the results. The shares, which have gained 9 per cent in the past 12 months, added another 11.5p to close at 724p.

Sales of health products rose 5.8 per cent in the fourth quarter. Like-for-like sales, which strip out the effect of new store openings, rose 2.2 per cent in the past three months.

Boots has launched a price-cut programme to try to maintain momentum, chopping 8 per cent from the cost of 1,000 goods in stores.

Simon Irwin, the Boots analyst at JP Morgan, said: "This is the third trading statement in a row where they have beaten expectations. It shows the turnaround is very much on track."

Despite the numbers, Mr Baker was downbeat about the future for the high street. He predicted the end of a five-year shopping boom as consumers grapple with higher bills and more expensive borrowing costs.

"Cost inflation in the retail sector is pretty ugly. The consumer environment is tough. People are getting bigger bills and will be spending less," Mr Baker said.

"I am a bear, not a bull," he added.

His comments are the latest indication that retailers have suffered a tough start to 2006 after a mini-flurry of sales in the run-up to Christmas.

A raft of surveys has highlighted a sharp fall in the volume of sales passing through high street tills since the start of the year. Official figures showed that retail sales slumped 1.6 per cent in January.

According to the CBI, the slump in sales forced retailers to carry out the largest jobs cull for at least 23 years in February.

The CBI reported the third successive month of falling sales for March and urged the Bank of England to cut interest rates.

Retailers have blamed inflation-busting rises in gas and electricity prices, a rise in council tax bills and the overhang of households' record £1.2 trillion debt for curbing consumers' willingness to spend.

John Longworth, the head of the CBI survey panel and an executive director of Asda, recently warned that this year would be as "challenging" for retailers as 2005.

"That points to some casualties ... and once we get past Christmas the crunch point comes in the next six weeks in terms of stores' continuing prosperity," he said.

"With rapidly rising household bills for energy, water and council tax, it's no wonder that consumers remain cautious about spending money, except on basics such as food."