Walgreens’ ‘torrid’ quarter: Why can’t it learn from Boots?

(Source: Bigstock)

Pharmacy retailer Walgreens Boots Alliance swung to a loss in the second quarter, a result that an analyst described as “torrid” and could be improved if the company applied the lessons from its Boots arm.

Walgreens last week posted an operating loss of $13.2 billion for the quarter ended February 29, compared to an operating income of $197 million in the year-ago period. The loss was attributed to a non-cash impairment charge related to VillageMD goodwill, as well as an impairment charge related to certain long-lived assets.

Meanwhile, sales increased 6.3 per cent to $37.1 billion (up 5.7 per cent on a constant currency basis), reflecting growth across all segments.

According to Neil Saunders, MD of GlobalData, the company has the playbook of Boots at its disposal but did not apply the lessons to the US business.

“This quarter, Boots’ UK comparable retail sales increased by 5.9 per cent and the company gained market share,” Saunders elaborated.

“The own-label innovation from Boots in categories like skincare, the addition of more fashionable beauty brands to stores, and the investment in opening price points have all paid dividends and ensured the chain remains a go-to destination.”

Walgreens’ US pharmacy operation posted reasonable sales growth of 4.7 per cent or 4.8 per cent on a comparable basis, thanks to strong demand and drug inflation in the prescription business, the analyst said.

In the retail business, sales dropped 4.5 per cent in total and 4.3 per cent in comparable terms following a string of declines.

“Our data shows that Walgreens is losing its share of shoppers for general merchandise purchases and is also losing ground in the beauty market. On the general merchandise front, customers are migrating to other retailers that have stronger opening price points and offer better value for money,” Saunders explained.

With healthcare making a huge loss, retail has become a more important driver of profit, but the company still lacks vision in this arena. Walgreens should be developing both sides of its business instead of just focusing on health and neglecting retail, he concluded.

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