Walgreens Boots Alliance’s (WBA) UK business has seen another fall in sales amid “challenging” retail conditions. However, the group highlighted progress it was making with its turnaround plan.
Total fourth quarter sales in WBA’s Retail Pharmacy International unit slipped 1.8% on a constant currency basis to $2.7bn. This was blamed on a 2.1% decline in Boots UK, where sales had already fallen 1% in the previous quarter.
Comparable pharmacy sales were down 1%, primarily due to lower volumes and NHS funding levels in the UK. Retail sales decreased 2.7%, although the group claimed Boots had maintained its share of the market.
The unit’s gross profit on a constant currency basis was down 5.4%, with WBA saying this was the result of weaker retail sales and margin in Boots UK, and lower pharmacy margin. Operating profit slid 20.7% to $194m.
Back in June, Boots announced plans to close 200 of stores following a period of lacklustre performance. Its sales have weakened as a result of the tough trading conditions, underinvestment in its stores, and increased competition from value-oriented chains and online beauty retailers.
The company revealed yesterday that it has closed 18 stores in the past four months with it hoping to complete its closure programme by the end of August 2020.
Alex Gourlay, Co-Chief Operating Officer for WBA, outlined that the company is continuing “to take actions to address our UK cost base,” including the completion of plans announced in February 2019 to reduce Boots head office costs by 20%. He also revealed that the company was generating cost reductions through the simplification of its care home operations and supply chain.
Boots has started testing new store formats to try and win back shoppers from emerging rivals in the sector. Sebastian James, Managing Director of Boots UK & ROI, commented: “I am pleased with the progress that we have made in the re-boot of one of Britain’s best-loved retailers. Our new stores are trading well and the work that we have done in reinvigorating our beauty and digital businesses is bearing encouraging early fruit.
“Nevertheless we are aware that this is a journey and that market headwinds have been strong and look likely to remain so for some time.”
The wider WBA group embarked on three-year “transformational cost-management program” last year, with an initial annual savings target of $1bn by the end of the third year. This was later increased to €1.5bn, with WBA announcing yesterday it was raising the target again to $1.8bn by fiscal year 2022.
For the WBA business as whole, annual sales rose 5.8% on a constant currency basis to $136.9bn, buoyed by a stronger-than-expected fourth quarter.
Its total sales for the three months to 31 August were up 2.6% to $34bn after its core US retail pharmacy division posted a 2.1% hike in sales to $26bn. Meanwhile, its Pharmaceutical Wholesale division saw sales rise 7.9% to $5.7bn, led by emerging markets and the UK.
However, the group’s fourth-quarter earnings fell 55.2% to $677m due to one-off charges relating to its cost-cutting programme.
Stefano Pessina, Executive Vice Chairman and Chief Executive of WBA, commented: “We are pleased to report fiscal 2019 results in line with our previously stated guidance despite a challenging operating environment.
“We are also making progress on our four strategic priorities, which we remain confident are positioning us to deliver long-term growth.”
NAM Implications:
- Given the growth of discounters and online in its categories…
- …an 8% reduction in estate capacity is reasonable and perhaps necessary…
- This should help to stabilise, even grow outlet profitability…
- Hopefully the turnaround strategy will help in optimising the remaining stores…
- Time to update and secure your fair share of the action?
