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WALGREENS: THE NEW ALLIANCE

In the three months to May 31, Walgreen’s total net sales rose by 48.4%. Retail pharmacy sales within the USA were up by 5.3% in total and by 6.3% on a comparable basis. We take a look at the numbers.

As its new longer official name suggests, Walgreens Boots Alliance has posted a very strong set of net sales numbers largely thanks to the inclusion of a full quarter of Alliance Boots’ turnover in its accounts. With sales of some $28.8bn for the quarter, the company remains a little way behind – but now within striking distance – of rival CVS, which posted $36.3bn of sales across a similar period.

With the formal combination of Alliance Boots closing in December, Walgreens has wasted no time in finding another acquisition target. This time, however, the suitor is somewhat smaller and comes in the shape of the popular skincare brand Liz Earle. Notably the company has been purchased for $140m in cash from Avon of which it was previously a wholly owned subsidiary. That Avon has sold it off speaks volumes to its own problems with its core proposition, on which it now desperately needs to focus.

Walgreens: Q3 sales change on prior year (%)

"Walgreens has posted a very strong set of net sales numbers largely thanks to the inclusion of a full quarter of Alliance Boots’ turnover"

Although Liz Earle is tiny compared to the behemoth that is Walgreens, there is sound reasoning behind the acquisition in that it gives the company a solid brand in an important category which it can grow by driving sales in its extensive network of stores.

Although there are no signs that Liz Earle – which is currently sold in department and beauty stores as well as a handful of its own stores in the UK and via its website internationally – will be made exclusive to Walgreens, it does give the company another brand in its armory, joining that of Boots’ highly successful No. 7 line and the Soap & Glory label. Arguably, having a strong portfolio of owned brands is one of the points of differentiation from CVS and is something that will allow Walgreens to compete more effectively against specialists like Sally as it seeks to become more of a destination for beauty.

Away from acquisition related activity, total sales in the US Retail Pharmacy division are more reflective of underlying performance, and rose by 5.3% in total and by 6.3% on a comparable store basis. These numbers compare favorably to CVS which, outside of its pharmacy services division, posted 2.9% retail pharmacy growth in its latest quarter. Admittedly, Walgreens comparable numbers are much stronger on the pharmacy side (up 9.1%) than in front-of-store retail (up 1.6%), but nevertheless both sets of figures are solid when benchmarked against the sector as a whole. In large part they reflect the efforts the company has made around improving service, convenience, and enhancing the in store experience.

The exciting opportunity for Walgreens lies in the fact it is now a truly global player with, through its Alliance business, one of the largest pharmaceutical wholesale distribution networks in the world.

The opportunities for expansion as well as from ongoing synergistic savings will, in our view, fuel revenue and profits over the years ahead.

This piece is taken from our Viewpoints service, which provides subscribers with analysis and opinion of retailers’ results as and when they are released. For more a free trial of this service, click below and complete your details.

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