CityBeat: Boots’ juggling act
Glynn Davis weighs up the challenges faced by Boots
January 23 2003
Boots must have got into the habit of failing by now because whatever it attempts just doesn’t seem to come off. This week saw the latest example of this unfortunate trend when it reported its best third-quarter sales growth for over a decade – but the City still marked its shares down.
Analysts took a dislike to how the gross margin had been impacted by this drive to grow the top line and pushed its shares down from 562p on Monday morning to 534p by midday on Wednesday. This compares with a 12-month high of 732p.
A board director at Boots had indicated that the City’s preference was for the group to concentrate on pushing up sales. But having done this the City then didn’t like the effect it had on Boots’ margins. A failure to keep these two balls in the air proved too much.
The problem is that Boots has a whole host of other balls in the air and should any come crashing down then the company could have real problems in the future. It finds itself in the unfortunate situation of currently looking for a new chief executive to replace the outgoing Steve Russell and it has some big decisions to make following a report from management consultants McKinsey that possibly suggest it flogs off its Healthcare International division.
On top of this the OFT has just called for a complete deregulation of the pharmacy industry, which will do away with the restrictions on who can dispense NHS prescriptions. While Boots says this is an opportunity to grow by 100 dispensing pharmacies we all know that it will be the supermarkets that will benefit most. This is yet another example of the superstores eating into Boots’ core offer.
If this trend continues then there will sadly be even fewer reasons to pop into Boots and experience probably the best levels of service on the high street. It certainly beats any supermarket – however much they might rattle on about serving the customer.
Glynn Davis was previously a fund manager in the City, and has since become a business journalist specialising in the retail sector. He regularly contributes to national newspapers and specialist trade publications. email glynn@busicomm.fsnet.co.uk
