Price war fears hit Boots shares

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Boots shares have fallen sharply after the retailer said it would invest £390m to fight back against competing supermarkets.

Investors were spooked by the prospect of a price war.

"While investment... is long overdue, it remains uncertain whether this will be offset by better sales, said Smith Barney analyst Bruce Hubbard.

Investors disregarded a rise in sales and a positive profit forecast.

Cautious

Sales rose 4% during the last three months in shops that were open a year ago.

The rise was better than analysts had expected, and the retailer did its best to bring further cheer to the market by announcing that its profits for the year to 31 March would meet expectations.

Nottingham-based Boots was also upbeat with regards to its efforts to revive its chemists.

"I am confident that as a result of these actions to accelerate investment... we will be in a much stronger position to deliver sustained growth in the future," said chief executive Richard Baker.

But analysts were not convinced.

"We remain cautious about the long term prospects for Boots given the food retailer competition and its physical maturity," said Mr Hubbard.

Boots also said it would extend its Prices You'll Love promotion.

Analysts were particularly concerned about the effect of this on Boots' profits.

Boots shares fell 7% in early trading.