Boots has been battling against competition on the High Street

The news that Boots is expecting lower 2005/6 operating profits comes a month after it warned on 2004/5 profits.

The group also unveiled plans to sell its Healthcare International division, which makes over-the-counter medicines such as Nurofen and Clearasil.

Boots added it planned to raise �250m by selling and leasing back 300 stores.

Shares in Boots rose initially on news that the firm intended to return some of the proceeds from the Healthcare sale to shareholders.

However, the firm's shares fell back in later trade as investors focused on the disappointing profit outlook. In afternoon trade they were down 3.5 pence at 616p.

'Subdued' trading

Same-store sales at the group's core Boots the Chemist chain fell by 0.9% in the three months to March.

Sales growth will be hard fought for and cost pressures will continue to rise Richard Baker, Boots chief executive Check Boots' share price

However, once adjusted for the leap year, turnover at the division increased by 0.7%. Total group sales rose 1.1% during the quarter.

As a result, Boots expects profits for the 12 months to March to be in line with forecasts of �470m ($884m), down from �581m last year.

For 2005/6, Boots said that "lower consumer spending and higher infrastructure costs are likely to lead to lower operating profits".

"Sales growth is expected to be subdued."

Heavy going

Boots' comments are the latest in a long line of gloomy statements to have emerged from UK High Street retailers.

Well-known names such as Marks & Spencer and Jessops have issued profit warnings this year, and business group the CBI said retail sales fell at their fastest pace for six months in March.

Clearasil is one of Healthcare International's global brands

Boots issued a profit warning on 1 March for its 2004/5 results. Two weeks later its finance director Howard Dodd resigned, although the company said his departure was not related to the profit alert.

Chief executive Richard Baker suggested there were few signs that the High Street was set to enjoy any immediate upturn in fortunes.

"It is clear that we are now, and will be for the foreseeable future, operating in a much more difficult trading environment," he said.

"Sales growth will be hard fought for and cost pressures will continue to rise."

He added the group would continue to cut prices and improve its supply chain.

Cutting 1,000 jobs and improving margins had reduced costs by �110m, Mr Baker said.

Shareholder boost

Boots said market conditions were "good" for the sale of its Healthcare International business, which manufactures and sells over-the-counter (OTC) treatments including Strepsils throat lozenges and Optrex eye wash.

"The organic prospects for growth remains strong and the business has significant potential," Boots said.

But it added that the global OTC market was consolidating, and that it thought the business would have a better future outside the Boots group.

Boots said the intention was to return "a significant proportion" of the sale proceeds to shareholders.

The proposed sale and leaseback of Boots stores would include 300 of its smaller stores, the company said. It hopes to complete the deal over the summer and will use the proceeds to cut short-term debt.