WBA results hit hard by precipitous drop in Boots traffic

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DEERFIELD, Ill. — Walgreens Boots Alliance (WBA) said its financial results for the fiscal 2020 third quarter, which ended May 31, were significantly impacted by the COVID-19 pandemic.

Pharmacies Alliance Boots. Londres Royaume Uni. 12 Mai 2009

“Prior to the pandemic our financial performance for fiscal 2020 was on track with our expectations. However, this unprecedented global crisis led to a loss in the quarter as stay-at-home orders affected all of our markets,” said Stefano Pessina, executive vice chairman. “I’m very proud of how all of our teams mobilized and adapted to deliver essential services in our communities across the world. Shopping patterns are evolving more rapidly than ever as consumers further embrace digital options, spurring us to accelerate our ongoing investments in digital transformation and neighborhood health ­destinations.”

The company is seeing encouraging response from customers to its digital marketing initiatives, with the ongoing rollout of mass personalization boosting Walgreens retail sales by 95 basis points in the third quarter.

The adverse impact of COVID-19 on sales in the quarter was approximately $700 million to $750 million, with the majority of the impact related to the Retail Pharmacy International division. This reflected a dramatic reduction in footfall in Boots UK stores — down 85% in April — as consumers were advised to leave home only for food and medicine. While most Boots stores remained open throughout the U.K. lockdown to provide communities with pharmacy and essential health care, our largest premium beauty and fragrance counters were effectively closed. More than 100 stores, mainly in Main Street, station and airport locations, were temporarily closed as were nearly all of the 600, Boots Opticians stores.

Additionally, gross margin was adversely impacted by sales mix, with a shift from higher-margin discretionary categories to lower-margin categories, and by higher supply chain costs. The company took measures to keep stores open during COVID-19, incurring incremental selling, general and administrative (SG&A) expenses, including higher employee costs and store expenses related to social distancing and incremental cleaning.

As a result of these impacts, operating and adjusted operating income included an adverse impact of $700 million to $750 million, or 61 cents to 65 cents per share, excluding impairment charges.

Furthermore, considering the third quarter operating loss in Boots UK and ongoing uncertainty due to COVID-19, the company reevaluated goodwill and intangibles in Boots UK, resulting in noncash impairment charges of $2 billion.

Third quarter sales in Retail Pharmacy USA increased 3.2% to $27.4 billion, including the impact of previously announced store closures. Sales in comparable stores increased 3% from the year-ago quarter.

Prescriptions filled in the third quarter decreased 1.3%, compared with the same quarter a year earlier. In comparable stores, prescriptions filled increased 0.4% from a year earlier, a slower rate of growth than in the second quarter, as COVID-19 stay-at-home orders led to a drop in doctor visits and hospital admissions. The prescription volume trend has shown steady improvement since the end of May. The number of prescriptions filled was 287 million, including immunizations, adjusted to 30-day equivalents. Pharmacy sales increased 4.6% compared with the year-ago quarter, as higher brand inflation and a 15.9% increase in specialty sales offset the COVID-19 prescription volume impact. Comparable pharmacy sales increased 3.5%.

The division’s retail prescription market share on a 30-day adjusted basis in the third quarter was similar to the previous quarter and declined approximately 30 basis points over the year-ago quarter to 20.9%, as reported by IQVIA. This result included an adverse impact due to the store closures.

Retail sales decreased 0.7% in the third quarter compared with the year-ago period, including the impact of the store closures.

Comparable retail sales were up 1.9% in the quarter. Excluding tobacco and e-cigarettes, comparable retail sales increased 3.5%. Comparable retail sales were impacted by a change in shopping patterns in the quarter, with increased demand for vitamins and personal protective equipment leading to a 9% increase in the health and wellness category. The personal care category increased 5%, while declining demand for discretionary items led to a 9% decrease in the beauty category. The general merchandise category was roughly flat, with an 8% increase in sales of grocery and household products offset by lower spending in discretionary areas, including a 34% decrease in photo.

Gross profit decreased 9.6% compared with the same quarter a year ago, and adjusted gross profit decreased 8.7%. The company estimates that about 45% of the year-over-year decline in gross profit was due to impacts related to COVID-19 such as the slowdown in pharmacy volume and the adverse gross profit mix, with most of the remaining impact due to ongoing reimbursement pressure.



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