Boots has delivered its tenth consecutive quarter of market share growth after making strong sales gains across all its main categories, particularly skincare. However, its owner, Walgreens Boots Alliance (WBA), was more downbeat, announcing plans for further cost cuts after posting heavy annual losses.
Over the fourth-quarter period to 31 August, Boots in the UK saw its comparable retail sales climb 11.7% after footfall grew ahead of the wider market, with its shopping centre, travel and flagship city centre stores seeing the biggest increases. For the year as a whole, retail sales rose 12.5%.
The retailer noted that skincare sales in the quarter surged up nearly 25%, while the premium beauty category saw growth of 20% despite the cost of living squeeze. The retailer’s own-label skincare ranges led the way, with sales up by over a third, whilst sales of its No7 brand jumped 20%, driven by its new ‘age reversal’ range.
Comparable pharmacy sales increased 9.9%.
Meanwhile, Boots’ online store continued to perform well, with sales growing 28.9%. The channel now represents over 13% of its total retail sales.
Boots highlighted that consumers’ current focus on value helped push up sales of its Everyday Essentials range by 25%. The number of active members of its Advantage Card scheme is also at a three-year high as customers looked to benefit from the loyalty programme’s savings.
“I am really encouraged to see continued strong performance as the work that we have done to expand our ranges, drive value and innovate in beauty seems to be resonating extremely well with customers,” said Seb James, Managing Director of Boots UK & ROI.
“We have great plans for the year ahead, including our new Beauty store in Battersea, a further extension of our beauty category, expansion of our online doctor service and much more.”
Meanwhile, in a group trading update, WBA revealed plans to cut costs by at least $1bn after the business made a net loss of $3.1bn for the full year, down from a profit of $4.3bn in the previous 12 months. The loss was partly driven by a $5.5bn after-tax charge for opioid-related claims and litigation in the period and lapping of a $2.5bn after-tax gain on the company’s investments in VillageMD and Shields Health Solutions in the year-ago period.
The fourth quarter net loss came to $180m, an improvement on the $415m loss over the same period a year earlier. This came on the back of a 9.2% increase in group sales to $35.4bn, reflecting growth in its US Retail Pharmacy (+3.7%) and International (+12.4%) units, and a strong contribution from its fledgling US Healthcare operation (+19.0)%.
The upcoming cost cuts are expected to focus on WBA’s US operations, including shutting more unprofitable stores and making its supply chain more efficient.
Earlier this year, Boots announced that it was shutting 300 more stores in the UK as part of a drive to rejuvenate its estate, increase efficiency and adjust to the shift to online shopping for health & beauty products.
Speaking yesterday, the group’s Interim Chief Executive, Ginger Graham, said: “Our performance this year has not reflected WBA’s strong assets, brand legacy, or our commitment to our customers and patients.
“In just six weeks, we have taken a number of steps to align our cost structure with our business performance, including planned cost reductions of at least $1bn, and lowered capital expenditures by approximately $600m.
“We anticipate seeing the impact of these actions in fiscal 2024, beginning in the second quarter. We are also intently focused on accelerating our profitability in the US healthcare segment.”
Earlier this week, WBA announced the appointment of healthcare veteran Tim Wentworth as its new CEO. He replaces Rosalind Brewer, who abruptly stepped down last month following less than three years in the job after the company reduced its annual earnings forecast for a second time.
Wentworth’s appointment comes as WBA looks to expand beyond its core retail and pharmacy business, and refocus its operations on the lucrative healthcare market in the US. This is expected to lead to the eventual sale of its Boots chain in the UK following a failed attempt last year.
Graham concluded: “As we welcome our new CEO Tim Wentworth, who brings deep healthcare experience and the skills needed to propel WBA forward, along with the support of the board, I am confident in our company’s future and the ability to deliver greater value to our customers, shareholders, partners, and employees.”
NAM Implications:
- Whilst the average sales rise of 11.7% kept pace with inflation…
- …standout categories of skincare at 25% and Premium beauty at 20% will affect management’s attention.
- Essentially the Boots issue is that WBA want to refloat Boots.
- This means they have to generate consistent sales and profit growth for five years in order to persuade the stock market to buy into a re-flotation.
- So Boots will cut costs and re-invest as much as can be afforded to create a positive track record.
- The problem is having to start with an immediate history of breakeven.
- And an owner wanting to cut costs in order to invest and focus on US opportunities…
