July 13, 2024

Boots owner WBA shelves sale plans again as UK ops strengthen but US is weak

In a not-very-good Q3 update, the US-based giant’s CEO Tim Wentworth said he would hold on to Boots as he works towards turning around the wider business that has been struggling in the US market.

Wentworh added: “We continue to face a difficult operating environment, including persistent pressures on the US consumer and the impact of recent marketplace dynamics which have eroded pharmacy margins. Our results and outlook reflect these headwinds, despite solid performance in both our International and US Healthcare segments.

“Informed by our strategic review, we are focused on improving our core business: retail pharmacy, which is central to the future of healthcare. We are addressing critical issues with urgency and working to unlock opportunities for growth. Many of these actions will take time, but I am confident that we have the right team and the right strategy to lead a business turnaround for the Walgreens that our customers and patients need.”

So what happened in Q3? WBA said sales rose 2.6% to $36.4 billion, and operating income was $111 million compared to an operating loss of $477 million in the year-ago quarter. Not so bad you might think, but this reflected it lapping a $431 million non-cash impairment of pharmacy license intangible assets in Boots UK in the year-ago quarter.

Adjusted operating income was $613 million, a worrying fall of 36.3% on a constant currency basis reflecting lower sale-leaseback gains and softer US retail and pharmacy performance.

Net profit was $344 million compared to $118 million in the year-ago quarter, an increase of $225 million reflecting higher operating income. But adjusted net profit fell 36.5% to $545 million, reflecting lower adjusted operating income.

And while sales in the first nine months of fiscal 2024 increased 6.2% to $110.1 billion, the operating loss was $13.1 billion compared to an operating loss of $6.4 billion in the year-ago period.

The US Retail Pharmacy segment had third-quarter sales of $28.5 billion, an increase of 2.3% from the year-ago quarter driven entirely by comparable pharmacy sales, partly offset by a retail decline. Comparable sales increased 3.5% from the year-ago quarter.

Retail sales fell 4% and comparable retail sales fell 2.3% compared with the year-ago quarter, reflecting a challenging retail environment and continued channel shift. Retail margin was negatively affected by increased promotional activity and higher shrink levels.

Adjusted operating income fell 47.9% to $501 million compared to $1 billion in the year-ago quarter, reflecting lower sale and leaseback gains, a challenging retail environment and reimbursement pressure, net of procurement savings, partly offset by cost savings initiatives.

As for the International ops, which are dominated by the UK Boots business, sales rose 2.8% to $5.7 billion, including a favourable currency impact of 1.1%.

Sales increased 1.6% on a constant currency basis, with the German wholesale business growing 4.9% and Boots UK sales growing 1.6%.

And Boots UK comparable retail sales rose a healthy 6% on a constant currency basis compared to the year-ago quarter with growth across all categories, and increased total retail market share.

Its webstore continued to perform strongly with sales growing 13.8 %, representing 15.6% of Boots total retail sales.

Adjusted operating income fell 15.8% to $175 million, a decrease of 16.6% on a constant currency basis compared with the year-ago quarter, due to it lapping those real estate gains in the year-ago period.

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