Boots cemented its recovery during the final quarter of its financial year, boosted by shoppers returning to its high street stores and visiting its outlets in airports and train stations after summer holidays returned.
The chain’s like-for-like retail sales during the three months to 31 August climbed 15.2%, with the company noting that it had made market share gains in personal care and health & wellness. The figure was slower than the 24% growth the previous quarter but still meant its retail sales are now back above pre-pandemic levels after suffering a significant hit during the height of the crisis.
Boots noted that it had continued to reinforce its position as the leading beauty retailer in the UK, launching 15 more big-name brands during the period. It also built on its new focus on professional haircare and developed its skincare offer.
Meanwhile, the company highlighted that its retail healthcare sales were up almost 14% in the quarter, driven higher by the launch of the chain’s first own-label erectile dysfunction treatment. Demand for suncare products also surged due to the heatwave in the UK and a return of international travel. The retailer’s own-brand Soltan range enjoyed its biggest week in sales since 2013, with the category recording a year-on-year increase of more than 150%.
Boots online operation also maintained the gains it made during the pandemic, with sales now up over 100% versus the same quarter in 2019. Digital sales accounted for 11% of the retailer’s total in the fourth quarter versus just 6% pre-pandemic.
However, pharmacy sales fell 6.9% as demand slipped for Covid-19 services such as vaccines.
Boots UK MD Sebastian James called the results “encouraging”, adding: “I am especially happy to see more and more customers choosing Boots over others and our market share rising as a result.
“In addition, I am pleased with the progress we are making in quickly introducing new, trending beauty brands, our healthcare services supporting the NHS and, of course, with our boots.com offer, which is now double its pre-pandemic levels.”
James noted inflationary pressure in the health & beauty market was not as severe as in other sectors, running at about 3.5%. In response to the cost-of-living crisis, Boots has recently introduced a new value-orientated everyday product range and a Price Lock Promise on over 1,500 lines.
“We get a little bit of the lipstick effect where the products we sell are an indulgence, but they’re relatively inexpensive. People might not get a new outfit, but they may get a new lipstick and that’s a benefit to us,” said James.
Lia Neophytou, a senior consumer analyst at GlobalData, suggested that Boots’ emphasis on providing value for money is paying off.
“It is becoming increasingly difficult to attract and retain customers as the cost-of-living crisis intensifies, however Boots’ strategy combined with the essential status of most health & beauty categories has enabled its retail sales to exceed pre-pandemic levels,” she said.
“Despite this encouraging set of results, the following quarter will be a more challenging period for Boots as the cost-of-living crisis intensifies further and discretionary income shrinks. The pressure on consumers’ budgets will coerce them to continually re-evaluate their spend and seek the best deals possible, highlighting the need for Boots to continually emphasise its value-for-money offerings and deals throughout the winter.”
Walgreens Boots Alliance (WBA), which recently abandoned its plans to sell Boots, posted a quarterly loss and warned that the strong dollar and slowing demand for Covid tests could weigh on future profit growth.
The loss of $822m reflected a $783m non-cash impairment charge related to intangible assets in Boots UK and higher costs related to its ‘Transformational Cost Management Program’.
Total group sales in the fourth quarter were down 5.3% to $32.4bn, although they surpassed analysts’ expectations of $32.1bn. Sales in WBA’s US retail pharmacy division decreased 7.2% to $26.7bn, while sales at its international unit fell 6.6% to $5.1bn, partly because of the strong dollar.
Annual profits at the US group fell 40.8% to $1.4bn on sales that edged up 0.1% to $132.7bn.
The Walgreens operation in the US is moving rapidly into the lucrative healthcare sector, with the recent acquisitions of home care company CareCentrix and speciality pharmacy company Shields. It is also expanding its primary healthcare group VillageMD and opening more health corners in Walgreens stores, which offer patient screening services.
NAM Implications:
- Key will be for Boots to keep pace with Tesco…
- …who may want to compensate for share lost to the discounters by pricing against Boots…
- …to maintain the gains made from Boots during lockdown.
- For suppliers, this means ensuring that they gain and maintain their fair share of investment and sales.
