Boots saw sales lift on its fourth quarter yesterday, prompting many analysts to raise their full-year profit forecasts for the group.
The 1,400-strong pharmacy chain said sales in the final period of 2005 were up 3.3 per cent with like-for-like growth of 2.2 per cent. Cosmetics, fragrance and healthcare led the charge.
That compares with a drop in like-for-like sales of 0.7 per cent in the third quarter and a drop of 0.2 per cent for the year as a whole. Analysts had not expected the upturn.
"In what has been a tough trading environment, we have performed solidly in our fourth quarter," said chief executive Richard Baker.
He also revealed a new price-cutting campaign, chopping an average eight per cent off 1,000 prices in Boots stores, to be backed by a television advertising campaign.
Many of the cuts, which Mr Baker estimated would cost about #25 million, will be across toiletries, where super-markets are muscling in on its territory.
"We remain very cautious and careful about the year ahead, which is why we've launched our price cut programme," Mr Baker noted, saying that a number of oneoff factors had swelled the latest figures.
Underlying growth before the impact of regulatory price changes and the calendar impact of a later Easter holiday was about 1.5 per cent and that was helped by weaker comparisons with a year ago.
"There is no sign of a retail recovery in our minds," Mr Baker said.
"We believe the consumer environment is set to remain challenging and there will be continuing inflationary pressure on retail costs."
Boots is in the process of merging with pharmacy chain Alliance UniChem to create a pan-European drugs retailer and distributor with 3,000 stores and more than #13 billion pounds in sales.
Progress on the merger hit a hurdle earlier this month after German drug wholesaler Celesio, owner of the Midlands-based Lloyds pharmacy chain, launched an appeal against the Office of Fair Trading's decision to conditionally clear the deal.
Boots said it expects the appeal to take weeks rather than months and is sticking with its view that the tie-up will go ahead in the summer.
Earlier this month Boots warned of up to 2,250 job losses during the next three years after revealing plans for a major overhaul of its warehouse operation.
The company said the creation of a new automated warehouse in Nottingham would allow it to replace 17 regional sites with smaller lorry-docking facilities.
The job losses will not affect Birmingham as the city and the West Midlands is supplied from Nottingham direct.
The group said flat gross margin, six per cent operating cost growth and working capital in 2005 were all in line with the company's previous guidance.
"This is the third trading statement in a row where they have beaten expectations," said Simon Irwin, analyst at JP Morgan. "It shows the turnaround is very much on track."
Financial director Jim Smart said he expected a "mild" upward revision to profit forecasts which range from #352 million to #396 million for the year ending today.
Mr Irwin said he might add around four per cent to his full year profit forecast of #384.8 million. Full results will be reported on May 18.