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'Low-performing' Boots branches under review in cost-saving programme

Boots’ parent company is to target “low-performing” pharmacies in the UK as part of its global cost-saving programme, it has announced.

Boots management has pledged "immediate action" to address financial results "much weaker than expected", its parent company Walgreens Boots Alliance said in its latest report, published yesterday (April 2).

The performance, which included a big profit downturn in the US retail pharmacy division, has led the company to start a review of its UK pharmacies, as well as increase its target for global cost savings over the next three years by 50%.

Store portfolio review underway

Speaking in more detail about the company’s plans for the UK, Walgreens Boots Alliance’s co-chief operating officer Alexander Gourlay said: “Our store portfolio review is underway, focusing on low-performing stores and opportunities for consolidation.

“In addition, we’ll look closely at our pharmacy business to further improve efficiency and effectiveness.

“We’re taking a balanced approach, with our actions focused on both boosting revenue growth and on creating a lean operating model,” Mr Gourlay added, referring to the multiple’s announcement in February that it would cut up to 350 head office roles, in a bid to reduce costs by 20%.

Chief financial officer James Kehoe said while Walgreens Boots Alliance is taking “decisive action in the UK”, market conditions remain “weak” and “challenging”.

Boots UK saw a 2.1% drop in its adjusted operating income for December to February, in comparison with the same period last year.

Sales in the company’s international division – pharmacies outside of the US – decreased 1.2%, “mainly due to a 1.3% decline in Boots UK”, Walgreens Boots Alliance added.

Pharmacy sales down

Pharmacy sales dropped 1.5% in the same period, primarily driven by “lower hospital revenues and revenue per item” in the UK, Mr Kehoe told analysts during a conference call after the results were published.

Retail sales in Boots branches also fell by 2.3%, but Mr Kehoe asserted the company had retained market share and added “we expect our store and brand investments to bear fruit as we exit 2019”.

Investments include the refitting of 24 beauty halls between now and May, with the introduction of more than 20 “on-trend” beauty brands in the next six months, according to Mr Gourlay.

The multiple is already piloting selling healthcare-related devices powered by Microsoft in a number of stores and in January, it acquired healthcare technology company Wiggly-Amps, which allows patients to order their prescriptions online by linking to their health records.

Wholesale sales rise

Meanwhile, Walgreens Boots Alliance’s wholesale division – which includes Alliance Healthcare in the UK – saw sales increase by 9.1% on a constant currency basis compared with the same period last year.

This was “mainly due to growth in emerging markets but also to a customer contract change in the UK, which contributed 2.1% of revenue growth”, said Mr Kehoe.

Overall sales for the quarter across Walgreens Boots Alliance increased 4.6%, to $34.5 billion (£26.4bn), compared with the same period last year. On a constant currency basis the increase was 6.7%.

The fall in UK income represented a slow in the decline compared to the previous quarter, which showed a 34.6% drop in its adjusted operating income in comparison with the same period the previous year.

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