View from City Road: Body Shop needs to reassure

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The Independent Online
EVEN at the best of times, the relationship between Anita Roddick and the City was prickly. Heaven knows how the two sides will communicate now that the outlook for Body Shop International is less rosy.

Ms Roddick's response to the share price collapse yesterday was: 'I'm not surprised. When we performed at a celestial level they were pissed off with us. This is the normal way the City works.'

She has a point, but it is not the most promising attitude to take towards shareholders desperately wanting reassurance that this isn't the beginning of the end for Body Shop. Investors should be grateful for the fat years of the past, but still deserve more explanation of how Body Shop can stave off the nemesis that has befallen so many other fast-growing retailers.

The group's talk still has a naive, hubristic flavour - all about expansion, new store openings and sales growth. True, if she hadn't been bold and naive, Ms Roddick would never have opened that first shop in Brighton 16 years ago.

But investors need reassurance. There is a distinct lack of talk from the group about the return on capital employed (declining), the gross margin (declining), the yield (declining), the debt gearing (rising) and costs per employee (rising fast).

Body Shop is mostly a franchise operation. As such it is less vulnerable to the dangers of over-expansion. But the UK is saturated. It seems strange, therefore, that the group should boast that nine more UK shops will open between now and February.

Ms Roddick has already alienated the City. Are her own UK franchisees next?