Retailer Boots posted a ten per cent fall in profits yesterday after counting the cost of weaker consumer spending and a plan to overhaul its estate.
The group, which is to merge with Alliance UniChem next year, achieved half-year profits of £163 million following a 1.3 per cent decline in like-for-like sales at its core business of 1,400 Boots the Chemist shops. Boots spent an extra £45 million in operating expenses, as a result of storebased investments, but still managed to beat City forecasts for a profits figure of about £151 million.
Boots said the like-for-like sales figure was below the rate planned for the full year, adding that it expected the market to "remain similarly tough" into Christmas and through the rest of the financial year.
Sales were also pulled back by the impact of regulatory price changes, but Boots chief executive Richard Baker described the overall performance in the six months to September 30 as "encouraging".
And he said the company had made progress with its ongoing plan to revitalise Boots, including investment in the healthcare part of the business and efforts to address a customer perception that the chain was too expensive. Mr Baker added: "Crucially, the investment and energy that has been put into our core health and beauty businesses is delivering results as we strengthen our position as the UK's health and beauty expert."
A breakdown of the firsthalf performance showed sales in healthcare edged ahead by 0.6 per cent to £936 million, even though dispensing volume growth of
5.1 per cent was offset by a fall of seven per cent in the price of branded medicines.
Sales in beauty and toiletries were up three per cent to £923 million, while the lifestyle division had a difficult half with sales of £337 million, down 2.8 per cent on last year. Lower sales of Atkins diet ranges contributed to the fall, while the overall market for photography services weakened.
The results were issued three weeks after Boots and Alliance UniChem announced plans to crate a pharmacy giant with 2,600 stores in the UK and £13 billion of sales. The new company, which should be formed in the second half of next year, will become the largest drugs retailer and wholesaler in the UK.
Mr Baker and his team have embarked on a marathon roadshow aimed at winning investors round to the prospect of the Alliance Unichem deal announced last month.
"My sense is that after the initial surprise there's been a shift in the tone of meetings to shareholders wanting to understand the possibilities it creates," Mr Baker said.
"I think they're starting to get it. I've always been of the view it will take two or three rounds, we're still only three or four weeks into that," he said. The merger will twin Boots's leading position in town-centre pharmacies in Britain with Alliance's strong community pharmacy presence and European distribution network, but analysts have said it does not address the fundamental Boots problem of slow sales growth amid intensifying competition. Boots has begun to furnish competition authorities in Brussels and elsewhere with the reams of documentation required.