Smith urged to axe Do It All

Shareholders see no future for DIY operation
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The Independent Online
THE City is urging WH Smith to bite the bullet and pull out of loss-making Do It All, its DIY joint venture with Boots, a move that could cost the troubled retailer pounds 50m.

Analysts and investors are increasingly taking the view that it will be imposible for the DIY chain to return to profitability in the face of depressed demand and overcapacity.

Last week, WH Smith's chief executive, Bill Cockburn, announced a fundamental review of the group, blaming a "culture of excuses" for a 60 per cent slump in the group's first-half profits.

Smith's share in Do It All contributed pounds 7.7m of losses, more than double last time, and institutional investors contacted by the Independent on Sunday say it has little future. Nor do there seem to be any buyers waiting in the wings to rescue the stricken chain.

If the partners decide on closure, several factors would magnify the balance-sheet impact. Many of the stores are on six-year leases, which the two owners would have to pay for, as well as half the rates over that period.

This could raise the cost to pounds 60m or more, and investors believe a rights issue refinancing would be almost unavoidable.

Investors, however, are prepared to give the benefit of the doubt to Mr Cockburn, who joined from the Post Office at the start of the year.

"WH Smith's return on sales is pathetic. It must do something. If it closed Do It All, at least it would end the seemingly bottomless pit of losses from the business," one institutional investor said.

First-half profits at Smith fell to pounds 17m from pounds 45m, with Do It All losses rising from pounds 3m on a 3.2 per cent drop in sales.

The gloom was compounded by a second profits warning in the space of a year.

Mr Cockburn said that the review would focus mainly on costs across the group and that its findings would be published this spring.

At present, the DIY market is dominated by four players. The largest, with sales of pounds 1.2bn, is B&Q, part of Kingfisher. Homebase, the DIY arm of Sainsbury, is another key player.

On Friday, Sainsbury announced upbeat trading figures for Homebase, where sales rose 13 per cent in the first 16 weeks of the second half. Homebase is also in the process of integrating Texas, another big DIY chain, which it bought for pounds 290m from Ladbroke last year.

Those results increase the pressure on WH Smith management, to solve Do It All's problems or get out of the business altogether.