Walgreens Boots Alliance (WBA) raised its full-year profit guidance yesterday after both its US and UK businesses delivered better-than-expected sales performance during its first quarter, aided by vaccination activity and surging online sales.
In the three months to 30 November, the group’s total sales from continuing operations were up 7.6% on a constant currency basis to $33.9bn, with operating profit increasing to $1.3bn, compared with a loss of $535m in the same period the previous year.
WBA said the increases “reflect strong adjusted gross profit growth across both pharmacy and retail in the US and a continued rebound in international sales and profitability”.
In the UK, comparable retail sales at Boots jumped 16.3%, recovering from the significant declines last year when its high street and travel sites were impacted by lockdowns, and shoppers turned to supermarkets for their health & beauty needs.
The group noted that footfall across its stores remained below pre-Covid levels, although online remained popular with sales nearly double the levels seen before the crisis.
After closing hundreds of underperforming stores, Boots has been investing heavily to make its remaining sites more attractive to shoppers and combat the explosion of online rivals in the health & beauty sector. It opened 27 new Beauty halls in regional locations during the period.
Comparable pharmacy sales at Boots increased 8.8%, supported by demand for its healthcare services which have been expanded significantly in recent months, both in-store and online. The business also delivered two million flu vaccinations in the period, up 150% versus last year.
Sebastian James, Managing Director at Boots UK, said the business had seen encouraging market share growth, adding: “Our transformation continues as planned with investment, particularly in digital, our beauty portfolio and healthcare services, aiding a fast-paced recovery from the pandemic.
“Covid restrictions continue to create headwinds for the UK high street but we remain focused on delivering for our customers.”
Boots stated that its performance over Christmas was “good” thanks in part to a jump in sales of perfume and beauty products.
In the US, comparable retail sales at its near-9,000 stores rose 10.6% – the highest quarterly growth in over 20 years – helped by both testing and vaccinations for Covid. Digital sales were also up 88%, driven by 3.6 million same-day pick-up orders.
Meanwhile, WBA made no mention of recent reports that it has hired advisors to explore a potential sale of the Boots chain in the UK as part of moves by new Chief Executive Rosalind Brewer to focus on growing its US healthcare activities.
Earlier this week, it has been revealed that a takeover approach by Bain Capital more than two months ago kicked off the process, with the private equity firm seen as the frontrunner in a forthcoming auction that could involve the likes of CVC, Carlyle, KKR, Blackstone, Advent and CD&R.
With a network of around 2,200 stores, the sale of Boots would be among the most significant deals involving a high street chain for many years. However, it would likely draw close scrutiny from the government given the retailer’s nationwide role in delivering public healthcare services.
Some analysts have suggested that the chain’s value could be between £10bn and £12bn, although others believe it would be closer to half that range given the challenges faced by Boots.
Commenting after yesterday’s results, Edge by Ascential director of advisory Nick Everitt said: “Under its new CEO, Rosalind Brewer, Walgreens Boots Alliance is investing billions of dollars in the US market, with a strong focus on integrating primary care into stores and pharmacies into patient care. So where does that leave Boots in the UK? While the news in Walgreens Q1 earnings was positive for the UK pharma chain, this is against difficult comparable as the UK like many others was in the thick of a dangerous Covid-19 wave this time last year.
“Boots is still the market leader in pharma and health and beauty retail in the UK, representing about 23% of store-based sales in these sectors. However, these sectors – much like other retail categories – are moving online and Edge by Ascential expects UK pharma retail e-commerce to grow seven times faster than store-based sales by 2026.
“Despite being UK market leader in pharmacy, health and beauty, Boots’ rivals are growing rapidly with even Amazon quickly growing its share and influence in the health and beauty category.
“If Boots wants to remain ahead in the UK market, it is essential that it focuses investment in its online channels, rather than relying primarily on a store estate that is tired and no longer reflects the needs of the modern customer.
“Boots already made two important moves last year to compete with its rivals, such as partnering with Deliveroo and rolling out dedicated beauty halls, but to win in this space, this must be paired with a strong e-commerce presence that allows the business to thrive in a new era of omnichannel retail.”
NAM Implications:
- Clearly the future of Boots lies in success online…
- (and optimising their franchise in terms of patient/healthcare)
- Especially given the PE assessment anticipated.
- Meanwhile, suppliers proposing online-based initiatives will have the most appeal in the current situation…
