Boots on the level

Boots' trading was level during what it claimed was a difficult fourth quarter. However, the retailer warned that operating profits for 2005/2006 were likely to be below market expectations. Like-for-like sales were down 0.9 per cent and total sales were marginally up 1.1 per cent for the period. The retailer said that full year like-for-like sales were expected to increase by 2.3 per cent. Full-year group pre-tax profits are expected to be in line with market expectations at about£475 million.

Boots used the opportunity to announce the proposed sale of its Healthcare International arm, which is expected to turn in an operating profit of about£85 million for the full year. The retailer also unveiled the proposed sale and leaseback of 300 of its small-format stores. Boots said the proceeds of this venture were likely to be in the region of£250 million and should be completed over the summer. The proceeds will be used to pay off short-term loans.

Chief executive Richard Baker acknowledged that the final quarter of the year had suffered from a general slowdown in UK retail. He said that the retailer had made significant progress, but warned that there are no quick fixes. The need to reduce prices on core product lines, upgrade ageing systems and adopt supply chain efficiencies are at the centre of his business strategy, as is developing out of town sites.

He said: 'I would be the first to acknowledge the many challenges that Boots faces in addressing its legacy and the highly competitive environment in which it operates. It has been tough for both our people and our shareholders to face the reality that Boots The Chemists was operating an unsustainable model. Re-investment was minimal and profits were inflated by unrealistic pricing. We are now tackling these issues.'