View from City Road: Smith cutbacks won't do it all

EXECUTIVES of WH Smith are putting a brave face on the haemorrhaging Do It All chain of do-it-yourself stores. 'It will improve, it will improve,' insists Sir Simon Hornby, Smith's chairman, when asked how long he is prepared to shoulder losses, now costing Smith almost pounds 15m a year. The housing market will recover, and the do-it- yourself sector with it. The group won't have to inject yet more cash into Do It All. Failure is simply not countenanced.

Sir Simon is in an unenviable position. If Smith were to pull out of Do It All - not easy given the terms of the standstill deal with its 50-50 partner Boots - it risks being accused of giving up at precisely the wrong moment. The cost in write-offs would be painful. Still, he has bitten the bullet before - the withdrawal from television in 1991 is now looking prescient.

Do It All is heading for a full-year loss of pounds 28m and probably a similar amount next year, even if the price discounting gets no worse. For the moment the industry leaders Texas and B&Q - both of them profitable, incidentally - seem content to cut prices on specific lines rather than offering the blanket 20 per cent discounts seen last year.

Do It All's cash-guzzling should abate. Tax rebates will pay for the rest of the Tamworth distribution centre in Staffordshire. Swanky store modernisations costing pounds 300,000 apiece have been shelved in favour of pounds 80,000 refits. Smith still has faith in the new format, which in one case has delivered a 25 per cent increase in sales.

Elsewhere the business is in mixed shape. For the retail division the June to November reporting period began and ended lousily with fatter months in between. Trading profit fell from pounds 37.5m to pounds 34.9m. Christmas sales eventually met expectations after a slow start. Wholesaling and distribution did better, lifting trading profits from pounds 15.1m to pounds 16.2m. The Niceday brand of office products is off to a good start.

In the full year Smith will do well to match last year's pre-tax profits of pounds 113m. The 15p share price fall to 440p yesterday puts the company on a multiple of 14.7 times prospective earnings of 29.9p.

That is quite cheap for the sector, but the group is overshadowed by uncertainties - the monopolies investigation into newspaper wholesaling, the perceived threat of VAT on books and newspapers and another probe into CD prices and, of course, the possibility that do-it-yourself price wars may erupt again in the peak selling period of Easter. Steer clear of the shares.

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