Walgreens Boots Alliance (WBA) has warned that it may be forced to close stores and cut jobs in the UK after suffering the “most difficult quarter” since its formation via a mega-merger in 2014.
As part of a global cost review that began last year, the group is looking at the viability of some of its 2,500 stores in the UK which could lead to the closure of underperforming sites. WBA stated that it has already been taking “decisive steps” to cut costs in the UK in recent months as part of the restructuring programme to get itself back on track.
In February, it was revealed that up to 350 jobs were at risk at Boots head office in Nottingham due to the restructuring plans aimed at trimming costs and creating a “more agile” team.
A Boots spokesperson said: “We currently do not have a major programme envisaged, but as you’d expect we always review underperforming stores and seek out opportunities for consolidation.”
After a poor run of results, a new management team at Boots has been working to modernise its product offering and stores to win back shoppers.
News of the overhaul in the UK came alongside WBA’s second quarter results, in which it also highlighted tough trading in its US division and warned that full year profits are now likely to be far lower than expected. The group is now forecasting that annual underlying earnings per share growth will be roughly flat, a hefty downgrade on its previous guidance of 7% to 12% growth.
In its International pharmacy division, sales decreased 1.2% on a constant currency basis to $3.1bn. This was mainly due to a 1.3% decline in Boots UK, where like-for-like pharmacy sales slipped 1.5% and retail sales fell 2.3%.
Sales its pharmaceutical wholesale division increased 9.1% to $5.7bn, mainly driven by growth in emerging markets and the UK.
Overall group sales rose 4.5% to $34.5bn in the three month period to the end of February, largely because of the addition of 1,651 Rite Aid stores it bought last year. Operating income decreased 23.3% to $1.5bn, with 12.6% fall in its US pharmacy unit.
WBA announced a $1bn group wide cost cutting programme back in December last year. This target has now been increased to more than $1.5bn by fiscal 2022, with a view to restoring profitable growth in 2020.
Unveiling plans to ramp up the programme, CEO Stefano Pessina admitted that the group had not taken action swiftly enough to offset the tough trading conditions and changing market trends.
He highlighted that margins were being hit by pressure to cut prescription prices as well as cheaper generic medicines, further compounded by weakening consumer markets in the US and UK.
Pessina said: “While we had begun initiatives to address these trends, our response was not rapid enough given market conditions, resulting in a disappointing quarter that did not meet our expectations.
“We are going to be more aggressive in our response to these rapidly shifting trends. We are focusing on our operational strengths and addressing weaknesses, making a number of senior appointments to bring change and accelerating the digitalization and transformation of our business.”
NAM Implications:
- In other words, a fundamental outlet-based review, with profitability a key driver.
- Essential for NAMs to re-evaluate their outlet sales per category (somehow!), even a steer resulting in support of outlets that matter, will help.
- Otherwise, witness your share in Boots decline…
