Body Shop shares slump

The Christmas period normally accounts for 70% of profits

Shares in The Body Shop dropped 25% in early trading after the UK ethical cosmetics and personal grooming chain issued a profits warning.

The news came as the company blamed transport and weather problems for a 2% drop in like-for-like sales in the UK and Ireland in the nine weeks to 24 December.

The company said the results were disappointing and also reflected lower-than-expected sales of some new products.

Full year pre-tax profit was now expected to be 10-15% down on last year, it said.

Investors reacted swiftly to the news, causing the firm's share price to drop 25% to 91.2p by 0831 GMT. At 1338 GMT, the shares had recovered slightly to 97p.

The company ended the day at 96p.

In October, the Body Shop had said it expected to deliver "significantly improved" profit.

But this assumed a successful Christmas trading period, which usually accounts for about 70% of annual profits.

Exchange rate costs

The Body Shop said it had also been hit by the adverse pound-to-euro exchange rate, which would cost it about £3m year-on-year.

Chief executive Patrick Gournay said: "Although we are disappointed with the outlook for the current year, we are confident that the changes we have made over the last two years will bring benefits to the business next year and beyond."

He said the firm's two main objectives for 2001 would be to ensure greater regional involvement in product innovation and to improve stock management.

Body Shop stores, by location

UK and Ireland 310

Americas 415

Europe & Middle East 684

Asia Pacific 431

Total 1,840

Given the slower sales, stocks had been higher than expected in recent months, leading to additional carrying costs of £3m for the full year, he said.

Globally, Body Shop total sales were up 5% in the nine weeks to 24 December, with global like-for-like sales 2% improved.

The strongest performance came from Europe and the Middle East, where like-for-like sales increased 5%.

The Body Shop has 1,840 stores worldwide, of which 477 are company-owned.