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Boots growth ‘offset’ by fixed pharmacy funding deal, parent company says

Boots’ growth in the last quarter “was more than offset” by the “adverse impact” of static NHS pharmacy funding, its parent company has said.

Announcing its financial results for the first quarter of fiscal year 2023 today (January 5), Boots’ parent company Walgreens Boots Alliance said the UK’s fixed pharmacy funding deal had tempered the multiple’s “strong growth”.

It said: “Strong growth in UK retail and Germany was more than offset by lower demand for COVID-19 related services in the UK, the adverse gross margin impact of NHS pharmacy funding, and the expiration of COVID-19 rental reductions received in the year-ago quarter.”

In a call to investors detailing the results, the company’s chief financial officer James Kehoe noted that “on a combined basis, these three items had an impact of around 27 percentage points”.

However, Walgreens Boots Alliance pointed out that Boots retail sales had grown 8.7% compared to the same quarter last year, “on top of robust prior year growth of 16.3%”.

Walgreens Boots Alliance CEO Roz Brewer said she was “especially pleased with this good performance against a tougher consumer backdrop” during the call.

Ms Brewer added that the company’s “core retail pharmacy businesses in both the United States and United Kingdom remain resilient in challenging operating environment”.

 

Growth projected for Boots in second quarter

 

The financial results also revealed that:

  • UK pharmacy sales declined by 0.9% compared to the first quarter of 2022, which Walgreens Boots Alliance attributed to “lower demand for COVID-19 services” compared to the previous year
  • Footfall in Boots branches saw an 8% rise compared to the same quarter last year
  • Walgreens Boots Alliance’s international segments – which include businesses in Germany and Boots UK – saw a 13% decrease in gross profit in the first quarter of fiscal 2023, “including an adverse currency impact of 15.1%”

 

Mr Kehoe said: “Looking forward, we do expect the international segment to return strong profit growth in the second quarter.

“Our international business, particularly in the UK, has emerged in a competitively strengthened position and is well positioned for growth.”

He added that the US business had seen “explosive growth” and that the company is “going to see the same from the international business”, which includes Boots UK.

“Early indications show that Boots had a strong Christmas season with comparable sales growth of around 15% in key categories,” Mr Kehoe continued, with “over-the-counter cold and immunity” products seeing an “uptick” over the festive period.

Ms Brewer also noted that Boots was “benefiting from inventory availability through our proactive buying ahead of this year's cold cough and flu season”.

C+D today reported that Boots had slashed the price of its private flu vaccines to under £10 along with Superdrug.

Meanwhile, pharmacies this week reported struggling to get hold of medicines such as Lemsip amid a significant increase in demand for cold and flu treatments.

During its last financial results announcement in April 2021, Walgreens Boots Alliance revealed it had had “a robust discussion” with Boots about the possibility of a UK recession and had put plans in place for such a scenario.

Walgreens Boots Alliance confirmed in January 2022 that it was looking for potential buyers for its UK arm.

However, the sale eventually fell through in June last year after no prospective buyers were able to make an offer “that adequately reflect[ed] the high potential value” of Boots UK.

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