Walgreens Boots Alliance (WBA) has delivered a better-than-expected quarterly profit and improved sales in its core US business, although its international retail pharmacy division was again dragged down by weak performance of its Boots chain in the UK.
After describing its previous quarter as its “most difficult”, the pharmacy giant revealed that its adjusted earnings over the three months to 31 May were down 4% from a year ago to $1.47 a share, although this topped Wall Street forecasts by four cents. Adjusted operating income decreased 11.7% to $1.7bn on total sales that edged up 0.7% to $34.6bn. However, sales growth was 2.9% on a constant currency basis, primarily due to improved results from its pharmacy chain in the US and pharmaceutical wholesale division.
WBA’s Retail Pharmacy USA division saw total sales increase by 2.3% to $26.5bn. Excluding the impact of optimising stores following its purchase of more than 1,600 Rite Aid stores last year, organic sales rose 2.9%. Core pharmacy sales rose 6% like-for-like, offsetting a 1.1% decline in retail sales as the chain continued to move away from tobacco.
Sales at WBA’s Retail Pharmacy International unit fell 7.3% to $2.8bn, largely because of a stronger dollar. Sales decreased 1.6% on a constant currency basis, mainly due to a 1% decline in its Boots UK business. Adjusted gross profit was down 1.6%, due to lower pharmacy margin and the weak retail sales in the UK.
Like-for-like pharmacy sales in the UK business slipped 0.8%, whilst retail sales fell 2.6% in a tough market. However, the group stated that Boots was “broadly gaining retail market share amid weakness in certain categories”.
Earlier this week, Boots opened the doors to a new format store in London’s Covent Garden that is part of its wider plans to re-invigorate its offer to lift sales and win back shoppers from emerging rivals in the health & beauty sector.
Meanwhile, the company’s Pharmaceutical Wholesale unit saw sales fall 1.7% to $5.9bn, again due to the strong dollar. On a constant currency basis, sales rose 8.3%, primarily reflecting growth in emerging markets.
WBA stuck with its full-year guidance for adjusted earnings per share to be “roughly flat” compared to the $6.02 it reported in 2018. In April, the company slashed its earnings guidance, having previously expected growth of between 7% and 12%.
Chief Executive Stefano Pessina stated that the company would “continue our aggressive response to rapidly shifting trends” having already seen improved US retail sales and prescription growth. He added that WBA was making “good progress” with its group wide cost cutting programme announced at the end of last year. This now aims to save more than $1.5bn by fiscal 2022, with a view to restoring profitable growth in 2020.
NAM Implications:
- Given continuing poor performance in the UK…
- …the issue has to be the extent to which WBA will be prepared…
- …to fund business building initiatives in its UK market.
- Watch this space…
