Currency hurt Walgreens Boots Alliance sales
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Walgreens Boots Alliance sales figures have been an early victim of the strengthening dollar, especially against sterling in which the majority of which Boots’ sales are denominated.
This dynamic has turned a 1.4 per cent international sales gain in local currency terms into a decrease of 10.9 per cent in the final accounts. In turn, this has diminished overall turnover growth to a paltry 0.4 per cent – markedly down on the 35 per cent uplifts posted a year ago when not yet annualised Alliance Boots’ sales were providing a healthy boost to the figures.
Fortunately, thanks to some one-off expenses and losses on equity interest last year – neither of which reoccurred this year – the bottom line outcome is strong, with net income rising by well over 3130 per cent. Given that Walgreens is still in the process of driving synergy savings from the Boots Alliance merger it will generate further profit uplifts well into the next fiscal, even against a more challenging growth backdrop.
It is inevitable, however, that the returns from cost savings and the streamlining of the business will diminish over time. And given that the prospects for a recovery in sterling look slim, the company will need to look to its domestic operation to drive future growth.
On this front there are two pieces of somewhat disappointing news from today’s results.
“It is inevitable, however, that the returns from cost savings and the streamlining of the business will diminish over time.”
The first is the merger with Rite Aid which was scheduled to close in the second half of this year has now been extended into the next fiscal. There is no real mystery about this – it comes down to the glacial pace at which the Federal Trade Commission, which is examining the deal, moves. However, the extension means Walgreens will not be able to rely on Rite Aid to boost its numbers in the next quarter. Longer term, the deal will be value accretive, mostly thanks to the forecast $1 billion in synergy savings and to the productivity improvements Walgreens can bring to Rite Aid’s rather lacklustre stores.
The second concern comes from Walgreens’ front of store sales numbers in the US, which fell by 0.3 per cent on a comparable basis and by 0.5 per cent in total. Such an outcome is discouraging given that these had been on an upward trajectory thanks to the improvements the company has been making in its beauty offer. Given that Walgreens has also marketed its general merchandise offer more heavily this year, it is disappointing not to see gains in customer traffic. That said, the numbers are up against some tough comparatives from last year and with the new beauty offer continuing to attract interest from consumers, these metrics will strengthen over the holiday quarter.
The new fiscal year presents Walgreens Boots Alliance with more opportunities than it does challenges. As such, after a softer start expect to see strong growth in both sales and profits across the year as a whole.
-Neil Saunders
Questions & Answers
Q.How did the strengthening dollar impact Walgreens Boots Alliance's international sales?
How did the strengthening dollar impact Walgreens Boots Alliance's international sales?
The strengthening dollar converted a 1.4 per cent international sales gain in local currency into a 10.9 per cent decrease in the final accounts. This significantly diminished overall turnover growth.
Q.Why has the merger between Walgreens and Rite Aid been delayed?
Why has the merger between Walgreens and Rite Aid been delayed?
The merger has been extended into the next fiscal due to the slow pace at which the Federal Trade Commission is examining the deal. This means Walgreens cannot rely on Rite Aid to boost numbers in the next quarter.
Q.What is concerning about Walgreens' recent front-of-store sales performance in the US?
What is concerning about Walgreens' recent front-of-store sales performance in the US?
US front-of-store sales fell by 0.3 per cent on a comparable basis and 0.5 per cent overall. This is discouraging, especially as the company has been improving its beauty offer and marketing general merchandise more heavily.
Q.Despite sales issues, why did net income rise so dramatically for Walgreens Boots Alliance?
Despite sales issues, why did net income rise so dramatically for Walgreens Boots Alliance?
Net income rose significantly because certain one-off expenses and losses on equity interest from the previous year did not reoccur. This contributed to a strong bottom line outcome.
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