Woolworths wants to “buddy up” with other retailers at 80 of its high street stores in an unprecedented move to save money and boost profits at the beleaguered business.

Trevor Bish-Jones, its chief executive, said that a range of partnerships would be sought with rivals as he looks to make best use of Woolworths' vast property portfolio.

Under the first deal, Somerfield will trial its food range in concessions at three Woolworths stores from the end of the month. JJB Sports already runs a store in the basement of a Woolworths in Coventry.

Mr Bish-Jones said that about 10per cent of Woolworths' 822 stores had too much space. Woolworths has “exited” a million square feet in the past four years through store closures, swaps and a concession deal with Peacocks, the fashion retailer.

Mr Bish-Jones said: “We have got some stores which are just a bit too big for us and we need to find sensible ways of managing that. We could keep the existing space, but we know there is opportunity out there.”

He said that slimming down the bigger stores would help to “intensify” sales by enabling Woolworths to cut out unprofitable lines. “I think that partnering or buddying up is an increasing trend you can see in most fields of business,” he added.

The move came as annual results showed that the Woolworths chain bounced back into the black over the past year, recording a £3.4million profit in the 12 months to February 2, against a loss of £12.9million the year before.

Across the group, which also runs the EUK DVD and CD wholesale business and the 2entertain joint venture with the BBC, pre-tax profits rose 30per cent to £28.3million. Total turnover rose 8.5 per cent to £2.97billion.

Despite the growth, Woolworths reduced the final dividend by 87 per cent to 0.l7p a share - far greater than the reduction that analysts had expected. Shares in the group fell 0.75p to 11p, a drop of nearly 7 per cent.

Mr Bish-Jones insisted that the dividend cut, the first since Woolworths was demerged from Kingfisher, balanced the need for investors to make a return with the group's requirement for greater financial flexibility.

Sales at the Woolworths' chain are expected to be flat until 2009 after a 3.2 per cent fall in like-for-like sales over the past year.

Some of the cost savings will be reinvested into cheaper prices, with 1,000 branded goods set to come down by up to 14 per cent. A trial in 100 stores showed that Woolworths made its money back through greater sales in 14 weeks. The chain is also introducing a new children's clothing range tomorrow that will undercut Primark and match Tesco and Asda. Jeans will cost £2.

Mr Bish-Jones insisted that, despite continual speculation, a break-up of the business was not an option in the present economic climate. Woolworths can sell its 50 per cent stake in the 2entertain venture under a put option with the BBC and is widely expected to separate EUK from its high street stores at some point.

However, Mr Bish-Jones said: “We have made no secret of the fact that, if we thought it was the right thing to do, we would break up the business. But what we have said is that we can only do that when we are generating sustainable and enduring profits.”

Sanjay Vidyharthi, a Dresdner Kleinwort retail analyst, said that the moves to take out costs and increase margins could prompt a rally in the share price: “We think there is a modest upside from current levels, given the valuation and various permutations for change at Woolworths during the year.”

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