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Boots UK: ‘Realistic’ recession risk plan in place, US owner says

Boots UK has had “a robust discussion” with its US owner about the possibility of a UK recession and has put plans in place for such a scenario, its parent company has revealed.

“The UK is already in the depths of a pretty challenging environment,” Walgreens Boots Alliance chief financial officer James Kehoe said during a call to investors after the company announced its latest financial results yesterday (October 13).

He argued that “if there is a [recession]”, it has already hit the UK.

The parent company has had “a robust discussion” with Boots UK about its economic outlook, Mr Kehoe said, and the company has already built a “truly...realistic plan” to put in place.

Read more: Boots pharmacy sales down 6.9% due to ‘lower demand for COVID-19 services’

“They’ve probably built a scenario that is a recession, whereas in the US it’s moderate recession stance,” he added.

Bleak economic projections aside, Mr Kehoe said he still expected Boots UK’s sales to grow by 6% in 2023, as Walgreens Boots Alliance’s international segment completed a “strong” fiscal year in 2022.

However, he noted the that current strength of the dollar would “negatively impact reported results” from the company’s international segment and might challenge the company’s sales expectations.

 

Reformed business model

 

“A lot of [UK] high street retailers went bust” in the last 12 to 18 months, leading Walgreens Boots Alliance to scoop up “all the market share”, which has been very “profitable”, Mr Kehoe said.

The company has also “completely shifted [Boots UK’s] business model in the UK onto online”, he explained, making it a “completely different business with a different set of strengths”.

As a result, Walgreens Boots Alliance has “doubled the penetration that [it] had pre-COVID-19”, leading Mr Kehoe to believe that Boots can achieve the projected 6% growth, he said.

 

Foot traffic to recover “over multi-year period”

 

Foot traffic in Boots UK branches continues to be “below pre-pandemic” levels, Mr Kehoe said, although both he and Walgreens Boots Alliance CEO Roz Brewer noted that it was recovering well in “convenience locations” such as airports.

However, Mr Kehoe said recovery of footfall would not “necessarily be absolute” and he expected it to happen “over a multi-year period”.

This would hinge on “how many people go back to the office”, although he did not think it would be “realistic to assume that you’re going to get [a] 100% return to pre-COVID-19 office behaviour”, he explained.

Meanwhile, Ms Brewer wondered whether rising energy costs in the UK would “slow down traffic [to stores] over a period of time”, although she said Walgreens Boots Alliance was “optimistic on the UK business” and watching “the nice work that the UK team is doing”.

Mr Kehoe predicted that footfall in Boots UK branches “will never get back to exactly where it was before” the onset of COVID-19.

“But we’ve more than compensated [for that with] the size of the online business,” he stated, which has lead Walgreens Boots Alliance to recapture “the value that’s in the UK market”.

 

Fallen-through Boots UK sale

 

Ms Brewer also touched upon Walgreens Boots Alliance’s plans to sell Boots UK, which fell through in June after months of speculation.

The company was “really encouraged” by talks with prospective buyers and “achieved a high level of interest” for its UK segment, attracting “about eight to 10 interested parties”, she said.

Read more: Boots UK parent company ‘open to opportunities' after sale called off

“The markets turned on us and we went in another direction and decided to hold on to that asset,” Ms Brewer explained.

She pointed that Boots UK’s performance in closing out fiscal year 2022 had been “strong”.

“We’re going to continue to work [with] Boots UK and keep it strong until we make a decision there,” Ms Brewer said.

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