Boots' shock profits warning

BOOTS chief executive Richard Baker today warned of a 'dramatic slowdown' in consumer spending over the past six weeks, which will leave the High Street retailer as much as £35m short of the City's profit forecasts.

'People are buying the essentials but not a great deal more,' he said. 'Our customer numbers are steady but our average spend has fallen and like-forlike sales have been flat.'

Today's shock warning comes just six weeks after Baker assured the City that full-year figures for the 1,400-strong Boots The Chemists chain would be 'broadly in line' with analysts' forecasts of £500m. Now he says they will be in the £465m to £475m range, compared with £533m the previous year. Shares in the group plunged 27½p to 636p, wiping more than £200m from its stock market value.

Boots had factored in the consumer spending slowdown when it delivered its third-quarter sales figures last month, but the pace of deterioration in trading has taken the group by surprise, Baker admitted today.

He believes Boots is not alone in suffering and warns that it will be 'a very tough year' for the High Street: 'We did well over Christmas and were among the best performers in the retail sector,' he said. 'But now all the credit card bills from Christmas have landed on door mats, people are getting big heating bills and they're facing mortgage increases. We're not alone in this.'

He remains confident that he is pursuing the right recovery strategy for the group. 'I am very glad that we have taken aggressive moves to sort out our pricing. Had we not done that, we really would be in choppy waters now,' he said.

Boots has struggled in recent years to cope with the increasing power of the supermarkets, which have stolen market share in key areas such as health and beauty and cosmetics as well as pharmacies.

Baker has pinned his recovery strategy on sprucing up the tired stores chain and introducing widespread price cuts on as many as 3,300 lines to compete with the supermarkets.

{2} Today's warning from the group sent shivers through the retail sector, which endured its worst Christmas in almost 25 years and is now facing a sharp slowdown in consumer spending as well as unprecedented price competition.

Boots is one of several of Britain's so-called 'legacy retailers' - notably Marks & Spencer under new chief executive Stuart Rose - which are struggling to turn themselves round under new bosses. Others are Kate Swann's WH Smith, and Woolworths, headed by Trevor Bish-Jones. City analysts fear that Rose at M&S may be the next chief executive forced to issue a similar profits warning, with trading at the group said by industry sources to be 'dreadful'.

Unprecedented takeover interest in retailers among venture capital firms has kept share prices buoyant throughout the sector in recent months. But analysts are now warning that if High Street sales remain weak, that interest could disappear as bankers pull back from lending money to private equity houses to do deals.

Back-to-basics- plan

AT just 42, Richard Baker is one of the youngest chief executives of a FTSE company - and one of the best paid. He was brought in to turn the group round less than 18 months ago, and earned more than £1m in his first six and a half months there.

His pay was boosted by a bonus of £273,000, guaranteed as part of the lucrative 'golden hello' that lured him to leave his key position of chief operating officer at Asda.

His strategy at Boots has been to bring the group 'back to basics' and drag it into the modern retailing age, with widespread price cuts and longer opening hours. Improvements have been made to the stores, supply chain and computer systems, and he has also tackled costs, taking an axe to the head office workforce in Nottingham, cutting almost 1,000 jobs.

He also ended Boots' costly and unsuccessful foray into add-ons such as dentistry, chiropody and laser eye treatment, a move which cost more than £50m.